Financial Glossary: Community Reinvestment Act (CRA)


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Community Reinvestment Act (CRA)

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Community Reinvestment Act (CRA)

Community Reinvestment Act (CRA)

A law that requires banks and other financial institutions to meet the credit needs of their communities including Low and moderate income sections of the community. The act also requires banks to submit reports.

Community Reinvestment Act is a United States federal law that requires banks and thrifts to Offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as "Redlining." The purpose of the CRA is to provide credit, including home ownership opportunities to underserved populations and commercial loans to small businesses.

The CRA was passed into law by the U.S. Congress in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community. Only one banker, Ron Grzywinski from ShoreBank in Chicago, testified in favor of the act.

The CRA mandates that each banking Institution be evaluated to determine if it has met the credit needs of its entire community. That record is taken into account when the federal government considers an Institution's application for Deposit facilities, including mergers and acquisitions. The CRA is enforced by the financial regulators (FDIC, OCC, OTS, and FRB).

In 1995, as a result of Interest from President Clinton's administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators' attention on institutions' performance in helping to meet community credit needs.

These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for five years. Thus in 2002, the regulators opened up the regulation for review and potential revision.

Posted by Marcus evans Summits

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