Why Use It?

Access to Credit

Access to credit and financial services is critical to all communities. The CRA is a tool that community organizations can use to secure loans for home construction, purchase and improvement; for establishing neighborhood businesses; and for supporting community institutions. Access to banking services allows residents to be connected to the financial mainstream through checking accounts, investment vehicles and advice.

The importance of CRA lies in the fact that regulators do two sets of bank examinations: one for financial safety and soundness, and the other for community reinvestment. Increasingly, this biannual bank CRA examination by federal regulators offers opportunities to comment on the bank's performance to the regulators and open a dialogue with the bank about neighborhood access to capital and financial services or lack thereof.

CRA negotiations are most powerful during a bank acquisition or merger, when the regulators are carefully scrutinizing the bank's activities. The regulators look at CRA, among other issues, in deciding whether to approve a bank application to purchase another financial institution. It is also possible, however, to negotiate CRA commitments when there is no acquisition pending. When well prepared with data, community organizations can use public pressure to convince banks that they can gain financially [and otherwise] with a commitment to a community partnership. 

CRA has helped community organizations win increased investments, charitable contributions, branches, and access to loans and financial services. More than $1 trillion dollars has been committed to community investments; the polices and practices of financial services have significantly changed; and the public's and media's views have shifted to support the need for equal access to capital and financial services-largely as a result of CRA advocacy.

Keeping Local Accountability

In 1999, the U.S. Congress passed the Gramm-Leach-Bliley legislation, allowing banks direct ownership of insurance companies, mutual funds, and other financial companies. This has resulted in some enormous institutions growing even larger, and raises the question of how to ensure that banking access expands for low-income neighborhoods and people of color. Over the next few years, community-based organizations will need to join the CRA battle as their local banks are purchased by outside financial institutions.

• The more banking becomes national, rather than local, and contains multiple business ventures, the more difficult it is for local communities to persuade financial institutions to focus on neighborhood needs. 
• The more bank corporations expand to include other financial sectors, the more investors they have to answer to, and typically, deliver high profits to, as quickly as possible. This keeps lending focused on the short-term bottom line and not on long-term community needs.

CRA activism is needed in every community so that a continuum from local savings and loans to mega-banks fully serve the community's needs. Local organizations are in the best position to promote local investment needs and there are state and national advocacy organizations and resources to assist them. When a community develops explicit equitable development goals, they can be negotiated into specific CRA criteria with this spectrum of investors.

Building On Success back to top

Community use of the CRA began as soon as the Act was passed in 1977. Groups such as National People's Action and the Center for Community Change became important sources of knowledge and technical assistance about strategies to convince financial institutions to comply with the Act's provisions.

By the mid-1980s, community groups had successfully negotiated CRA lending, investment, and service commitments that focused on the needs of low-income and communities of color from banks and savings and loan institutions. These early agreements signaled the possibilities for success to other groups across the country.

CRA advocacy intensified in the 1990s with major CRA commitments. In 1992, Bank of America made a $12 billion commitment associated with its acquisition of Security Pacific Bank. The funds were committed for increased lending in affordable housing and economic development and for increased services for low-income consumers. Specific dollar and targeting goals were made for housing, small business, and consumer lending. New products were developed to serve the needs of low-wealth communities. Services were made easier to access by requiring only one form of identification and a small deposit to open a low-cost checking account.

The commitments of large financial institutions can be seen by the brief history below.

Model comparisons

These investments underscore the potential impact of CRA in low-income communities. 

Delivering Significant Capital

The growth of CRA commitments can be attributed to three facts: 

• CRA lending has been profitable for financial institutions. The ten-year California commitments made by Bank of America, Wells Fargo Bank and First Interstate Bank in 1992 were completed within four to five years. In half the time expected, a total of $21 billion had been invested in low-income communities and communities of color. This was a lesson for all the major banks: expanding products and marketing to previously ignored communities and people increased profits. These California commitments were the largest and most comprehensive in the country and helped set the terms of engagement nationally.

In addition, studies by diverse groups such as Bank of America and the Woodstock Institute, a community research institute based in Chicago , have shown that mortgage loans to low-income single families are less risky than those to wealthy borrowers.

• Banks have seen CRA commitments as an opportunity to distinguish themselves from their competitors. A public CRA commitment is one way for a bank to show that it recognizes, cares about, and meets the needs of its neighbors. CRA commitments have provided positive public relations and media coverage. The fear of negative publicity from failing to make a community commitment continues to motivate financial institutions to negotiate and sign these agreements.
• The numerous mega mergers of banks and financial institutions in recent years have delivered leverage to CRA agreements to prevent delays in completing the deals that can cost bank shareholders significant amounts of money.