Community Reinvestment Modernization Act Would Promote Lending and Wealth Building in Low-Income Communities

A bill (H.R. 1289) that Representatives Eddie Bernice Johnson (D-Tex.) and Luis Gutierrez (D-Ill.) introduced this month would expand the Community Reinvestment Act (CRA) to include bank lending through brokers, mortgage companies, insurance firms, and securities companies. This would not only increase lending in minority and working-class communities but also encourage wealth-building opportunities for people living in those communities.

Enacted in 1977, the CRA requires that deposit-taking financial institutions offer equal access to lending, investment, and services to all those in an institution’s geographic assessment area—at least three to five miles from each branch.

Before 1977, many bankers practiced “redlining,” or excluding low-income neighborhoods and people of color from their lending products, investments, and financial services. In the 1970s activists in Chicago and across the country brought strong pressure on banks to lend equitably to all those in their communities. Since its passage, the CRA has been used across the United States to win tens of billions of dollars in new lending, investments, and services for communities. The CRA also provides incentives for banks to increase their level of services to low-income communities. Low CRA ratings can delay bank merger applications and allow bank regulatory agencies to request specific improvements from inadequate financial institutions.

The CRA affects low-income communities by providing more affordable and market-rate home purchase loans, small-business lending, and community development loans. Broadening the CRA’s reach will mean trillions more dollars in loans and investments for neighborhoods. The CRA Modernization Act will help revitalize low-income communities even further, continue to promote fair lending practices, and create asset-building opportunities. CRA action illustrates how using public policies can ensure that everyone has an opportunity to participate in the financial mainstream and build assets to achieve financial security.