I decided to write about CRA because it is not a “mortgage” law. CRA also addresses commercial business loans, and was enacted to help curtail discriminatory lending practices that largely impacted communities with high minority populations. Women in these areas were hit particularly hard as they were unable to access credit, purchase homes, or expand their businesses.
Why Was the Community Reinvestment Act Necessary?
The CRA was enacted in 1977 under the Jimmy Carter administration “to encourage depository institutions to help meet the credit needs [including mortgages and commercial business loans] of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations.”
Lenders (banks and thrifts) who were taking in community deposits in “struggling” areas, were not offering mortgages, credit, or business loans to qualified applicants in those same areas. This practice was known as “Redlining” and created a tremendous disparity in access to cash for consumers who were not affluent and white.
According to About.com’s Guide to Home Buying and Selling, lenders would literally “draw a red line around a neighborhood on a map, often targeting areas with a high concentration of minorities, and then refusing to lend in those areas because they considered the risk too high. Even though it is now against the law, some lenders today are still accused of redlining.”
CRA was enacted to encourage federally insured lenders to offer loans to qualified applicants in communities where they also take deposits. It requires periodic review of how lenders are performing in communities; it does not demand quotas, it discourages redlining by identifying institutions that still refuse entire geographic areas access to cash.
