Revisiting the Community Reinvestment Act and Its Impact on Banking

Federal government reopening debate on regulations for banking and low-income communities

Community Reinvestment Act

The Community Reinvestment Act (CRA) was passed in 1977 to ensure banks were serving the credit needs of lower-income households and communities in which they operate, consistent with sound banking operations.

Enacted more than 40 years ago, the legislation ended the practice of restricting lending or “redlining” loans in certain communities. Prior to the CRA, banks defended practice as a process to reduce risk, but it undoubtedly resulted in lack of investment in communities of color and overall discrimination in banking activities at the time. But the CRA was only one of a slate of laws passed in the 1960s and 1970s to establish fairer lending and banking practices. 
Fast forward to 2018. In late August of this year, the Office of the Comptroller of the Currency published an advanced notice regarding proposed regulatory reform of the Community Reinvestment Act. Once published in the full register, there will be a 75-day open comment period for banks and impacted communities to submit statements and information about the impact of the CRA. Midsize and community banks all breathed a collective sigh of relief, as compliance with the legislation had become one of banking’s most burdensome activities and one that – if not done well – could have a deleterious effect on a bank’s efforts to merge, expand or sell its operations if it receives a low CRA ranking.

Adrenaline’s President, Sean Keathley, says, “The Community Reinvestment Act has come up in nearly every conversation I’ve had with bankers recently. With so many banks responding to disruption, optimizing their branch networks and developing workable solutions for the future, CRA compliance is on an ever-growing list of demands on bankers. That’s because, realistically, the guidelines have not kept pace with modern-era banking, particularly in the arena of branch-banking. Much like Dodd-Frank before it was revised earlier this year, compliance with the outdated regulations has become quite onerous, which means banks spend more resources in compliance than in serving their communities.” 

The CRA has long used the number and physical location of bank branches as one outsize measure of CRA compliance. With the overall number of branch visits in decline, experts view this particular metric as an invalid way of assessing local banking’s community fiduciary responsibility. Sean Keathley says, “With the explosion of online banking options available to consumers, CRA regulations focused on fixed branch locations are calling out for change. But discussions surrounding CRA modernization are not simply appeals for deregulation. Banks have developed deep relationships with the communities they serve and are committed to modernizing their offerings to meet 21st century demands.”

The bottom line is that modernizing or right-sizing the Community Reinvestment Act regulations – as legislators did with Dodd-Frank a few months bank – will require a robust discussion incorporating numerous points-of-view. Of particular interest is how technology – and fintech in particular – may be primed to help address the needs of underbanked communities across the country. Balancing the interests of the citizen, business and banking communities will be key to providing innovative banking and lending solutions for communities both now and in the future. 

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