Community Reinvestment Act (CRA)

• The Community Reinvestment Act (CRA) was enacted in 1977 by the US federal government to encourage financial institutions to meet the loan and other credit needs of the low- and moderate-income neighborhoods coupled with communities in which they conduct their businesses.
• This act is applicable to FDIC-insured financial institutions, including state-chartered banks, national banks, and savings associations. However, credit unions backed by non-bank entities such as the National Credit Union Share Insurance Fund are exempt from the Community Reinvestment Act.
• Three regulators supervise the banks that have CRA obligations, namely, Federal Deposit Insurance Corporation (FDIC) , Federal Reserve Board (FRB) , and Office of the Comptroller of the Currency (OCC).
• The Federal Reserve uses five evaluation methods based on the size of the banks and their business strategies. However, the CRA evaluation process is "somewhat subjective" as there are no specific quotas for banks to satisfy. Although the regulators look at the investment and lending data, the banks do not have to meet any specific benchmarks.
• The banks are given any one of the following ratings: "Outstanding" , "Satisfactory" , "Needs to improve ", and "Substantial noncompliance" .
• The ratings are then published online by the Federal Reserve for the public while customers can also request their banks for the same.
• The CRA scores are important for the banks as they are used to evaluate future applications of bank mergers, acquisitions, charters, deposit facilities, and branch openings.

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