What Is the Community Reinvestment Act (CRA)?

The Community Reinvestment Act (CRA) is a federal law enacted in 1977 to encourage depository institutions to meet the credit needs of the communities where they are chartered, including low- and moderate-income neighborhoods.

The CRA requires federal banking agencies to assess how well each institution fulfills its obligations to these communities. The agencies must consider these performance ratings when evaluating applications for future approval of bank mergers, charters, acquisitions, branch openings, and deposit facilities.

Key Takeaways

The Community Reinvestment Act (CRA) helps ensure that federally insured banks meet the credit needs of the communities in which they are located, consistent with safe and sound banking practices.
The CRA was one of several laws passed during the late 1960s and 1970s to expand access to credit.
Though regulators look at the lending activity and other data in their evaluation, there are no specific benchmarks banks have to meet.
CRA performance ratings are available online and upon request at local bank branches.
A 2023 update to CRA regulations introduces a metrics-based approach for evaluating bank performance, adapts to digital banking trends, and focuses on expanding access to credit and banking services in low- and moderate-income communities.
Most of the new regulations will go into effect beginning Jan. 1, 2026, with the remainder, including data reporting requirements, as of Jan. 1, 2027.

Understanding the Community Reinvestment Act (CRA)

Before the Community Reinvestment Act (and other fair housing laws), U.S. banks systematically denied mortgages to Black Americans and other people of color who lived in certain areas “redlined” by a federal government agency called the Home Owners’ Loan Corporation (HOLC). The HOLC created maps that classified neighborhoods across the country on a “perceived level of lending risk” based on information gathered from various sources, including local appraisers, loan officers, city officials, and real estate agents.

The neighborhoods were color-coded on maps, with each color representing the area’s perceived risk to lenders. HOLC deemed the red communities hazardous, describing them as “characterized by detrimental influences in a pronounced degree, undesirable population, or an infiltration of it.” Neighborhoods with predominantly racial and ethnic minority populations were colored red—hence, “redlined.”

The maps were a tool for widespread racial discrimination. The immediate effect of redlining was that residents in these areas couldn’t access credit to buy or improve their housing. However, the long-term effects of redlining persist:

74% of neighborhoods that HOLC colored red (“hazardous”) more than 80 years ago are low- to moderate-income neighborhoods today.
64% of the “hazardous” neighborhoods remain racial and ethnic minority neighborhoods today.
91% of areas colored green (“best”) in the 1930s remain middle- to upper-income areas today, and 85% are still predominantly White.

The objective of the Community Reinvestment Act was to strengthen existing laws requiring banks to sufficiently address the banking needs of all members of the communities they served.

Three federal regulators—the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve Board—share oversight of the CRA. However, the last is chiefly responsible for assessing whether state member banks are fulfilling their obligations under the law.

CRA Performance Ranking

The Federal Reserve uses one of five methods to rank a bank’s performance based on its size and mission. Though a 1995 update to the CRA requires regulators to consider lending and investment data, the evaluation process is somewhat subjective, with no specific quotas that banks have to satisfy. Still, each bank is given one of the following ratings:

Outstanding
Satisfactory
Needs to improve
Substantial noncompliance

The FDIC maintains an online database where the public can see a particular bank’s score. Additionally, banks are obliged to provide consumers with their performance evaluations upon request.

The CRA applies to FDIC-insured depository institutions, including national banks, state-chartered banks, and savings associations. However, credit unions backed by the National Credit Union Share Insurance Fund and other non-bank entities are exempt from the legislation.

Criticisms of the CRA

Critics of the CRA, including some conservative politicians and pundits, allege the law contributed to the risky lending practices that led to the financial crisis of 2008. They contend that banks and other lenders relaxed certain standards for mortgage approvals to satisfy CRA examiners.

However, some economists, including Neil Bhutta and Daniel Ringo of the Federal Reserve Bank, argued in 2015 that CRA-based mortgages represented a small percentage of the subprime loans issued during the financial crisis. As a result, Bhutta and Ringo concluded, the law was not a major factor in the housing market’s subsequent downturn.

The CRA has also received criticism that it has not been particularly effective. Though low- and moderate-income communities saw an influx of loans after the CRA’s passage, research by the Federal Reserve’s Jeffrey Gunther concluded that lenders not subject to the law—that is, credit unions and other non-banks—represented an equal share of those loans.

Modernizing the CRA

More recently, some economists and policymakers have suggested the law needs to be revised to keep up with changes in the industry and make the evaluation process less onerous for banks. For example, the physical location of bank branches remains a component in the scoring process, even though an increasing number of consumers are conducting their banking online.

In a 2018 op-ed piece, former Comptroller of the Currency Joseph Otting asserted that the CRA’s outdated approach had led to “investment deserts,” where “CRA activity often fails to reach by preventing banks from receiving consideration when they want to lend and invest in communities with a need for capital.”

The Office of the Comptroller of the Currency in May 2020 issued a final rule to “strengthen and modernize” existing Community Reinvestment Act regulations. According to a news release, the proposed changes received more than 7,500 comments from stakeholders in response to the notice of proposed rulemaking announced on Dec. 12, 2019.

Critics, such as the National Community Reinvestment Coalition, said the new rule would reduce banks’ public accountability to communities by limiting consideration of bank branches and bank deposit accounts in communities. But Otting said it “strengthened and modernized” the law, saying the final rule increased credit for mortgage origination to promote affordable mortgage availability in lower- and moderate-income areas.

However, in December 2021, the OCC rescinded the June 2020 rule to be replaced with a rule designed jointly by the OCC, Federal Reserve, and FDIC. On May 5, 2022, the agencies jointly proposed a new rule intended to account for the ubiquity of online banking and distribute reinvestment more broadly across the country.

In 2023, the Office of the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Insurance Corporation issued a final rule to modernize regulations implementing the CRA. The final rule focuses on eight key objectives, including strengthening the CRA’s core purpose, adapting to changes in the banking industry, promoting transparency, and ensuring consistency in regulatory approaches.

What Are the U.S. Fair Lending Laws?

Fair lending laws prohibit lenders from discriminating based on specific protected classes during any aspect of a credit transaction. Several statutes comprise federal fair lending laws and regulations, including the:

Fair Housing Act of 1968
Equal Credit Opportunity Act of 1974
Home Mortgage Disclosure Act of 1975
Community Reinvestment Act of 1977

What Is Redlining?

Redlining is the now-illegal discriminatory practice of denying credit to residents of certain areas based on their race or ethnicity. Sociologist John McKnight coined the term in the 1960s to describe maps created by the Home Owners’ Loan Corporation (a U.S. government agency) that marked racial and ethnic minority neighborhoods in red, labeling them “hazardous” to lenders.

What Factors Can Lenders Consider When Making Loans?

Lending institutions can only consider factors relevant to an applicant’s creditworthiness (their ability to pay). It’s illegal for lenders to consider factors that are unrelated to creditworthiness, including the applicant’s race, color, religion, national origin, sex, marital status, age, and participation in public assistance programs.

The Bottom Line

The CRA ensures that federally insured banks address the credit needs of their entire community, particularly low- and moderate-income neighborhoods. Established to combat redlining, the CRA has evolved with the banking industry, especially with the rise of online banking.

While some have criticized the CRA for its role in the 2008 financial crisis and question its effectiveness, many believe that the CRA remains vital for promoting equitable access to credit. Recent updates aim to modernize the CRA, focusing on transparency and adapting to current banking practices, to ensure fair financial services for all communities.

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What Is the Community Reinvestment Act (CRA)?