Financial Crisis Used to Undermine CRA
Foreclosure Intervention
Memo to Members: Vol 13, No. 40, October 10, 2008
In an effort to deflect blame from the regulatory and market failures that led to the current financial crisis, conservative policy makers and pundits have launched an attack on the Community Reinvestment Act (CRA). CRA, which was enacted in 1977, provides that regulated financial institutions are obligated to help meet the credit needs of their local communities, including lower income neighborhoods.
According to Media Matters, which is tracking the issue, anti-CRA statements have been made on The O'Reilly Factor and The Radio Factor with Bill O'Reilly, and in an editorial in Investor's Business Daily and a column in The BostonIn addition, online blogs have picked up on the issue. Conservative members of Congress have also begun to attack the CRA, with Representative Steve King (R-IA) this week introducing a bill that would eliminate the CRA (see article elsewhere in Memo). Globe.
These elected officials and media figures argue that the law caused the current financial crisis because it forced lenders to make bad loans to minority and lower income families.
These arguments are false. In truth:
·CRA existed long before the current crisis.
·The Act requires that activity under the CRA be consistent with the safe and sound operations of the bank, in order to protect against imprudent lending.
·Approximately 75% of subprime loans were made by institutions not covered by CRA requirements.
In an effort to combat these unfounded allegations, advocates will be working to increase awareness of CRA and the positive effects it provides for lower income communities. National groups, led by the National Community Reinvestment Coalition, are circulating a statement in support of the CRA that will be available shortly.
Under the CRA, banks are rated for their lending and investment activities—including home loans, banking services, small business loans, and community development lending—in low and moderate income neighborhoods. Ratings are done by one of four banking regulatory agencies: the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Federal Reserve Board and the Office of Thrift Supervision. If one of these regulatory agencies finds that an institution is not meeting the needs of its community, the agency can delay or deny the institution’s request to merge with another institution or expand its services.
Advocates can comment at anytime on a financial institution’s CRA performance. In the best cases, the Act has encouraged institutions to work closely with community groups to identify and supply needed products and services. In recent years, CRA opponents have worked to reduce the number of banks governed by CRA requirements.
Information about the CRA exam process can be found at www.ffiec.gov/cra/default.htm
Information on the false CRA attacks is available at http://mediamatters.org/items/200809300012
NCRC has published “CRA: Myth and Fact” at www.ncrc.org/index.php?option=com_content&task=view&id=353&Itemid=80
