The Community Reinvestment Act at 40

Carolina Reid
University of California, Berkeley

In 1977, Congress enacted the Community Reinvestment Act1 (CRA) in an effort to expand access to credit and to encourage private capital to return to formerly redlined neighborhoods. CRA established that federally insured banks and thrifts have a “continuing and affirmative obligation” to meet the credit needs of the communities that they serve, including low- and moderate-income neighborhoods, consistent with safe and sound banking practices. Since its enactment, CRA has been subject to significant debate, reflecting differing ideological views of the role of government in overcoming market failures (Barr, 2005; Chakrabarti et al., 2009). Forty years after the law’s passage, the question of whether banks have an obligation to serve low-income communities—and what form that obligation should take—is no less salient. This symposium seeks to inform that debate by bringing together new research and commentaries on CRA in an effort to better understand the impact of the law and to provide insights into how it could be improved to better serve the credit needs of low- and moderate-income communities.

Three themes emerge from the contributions in this symposium. The first is that CRA has a measurable impact on access to credit but that larger market forces often mute its effect. Bostic and Lee (2017) examine an important, underappreciated aspect of CRA—its role in expanding access to credit for small businesses. Analyzing data from nearly two decades of small business lending, they find that CRA increases access to small business loans but that the impact is influenced by macroeconomic market conditions and varies over time. Butcher and Munoz (2017) use newly accessible credit bureau data to examine the impact of CRA on a broad set of consumer credit outcomes. They find that CRA leads to increased credit market activity, including increases in the total number of loans, the number of people covered by the credit bureau data, and the fraction of individuals with a valid risk score. Importantly, they find no effect of CRA on increased delinquencies or foreclosures, adding to a growing body of evidence that CRA did not play a role in the subprime crisis (Avery and Brevoort, 2011; Canner and Bhutta, 2008; FCIC, 2011; Reid and Laderman, 2011; Reid et al., 2013).