What Is the Community Reinvestment Act?

After a months-long comment period, a final rule has been issued for the Community Reinvestment Act. Off Site Link

In December, the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency proposed changes to the four-plus-decades old CRA.  However, this final ruling was handed down unilaterally by the OCC and only applies to OCC-regulated banks.

The proposal seeks to “modernize” the act, created in 1977. However, opponents of the law’s amendment say the proposal will only hurt those the CRA intended to help in the first place.  In order to understand the controversy brought on by the CRA’s proposed changes, it’s important to first get a sense of what the CRA is and why it was created.

Here’s a primer on the CRA.

A General Overview of the CRA

The CRA came about as a way to ensure that banks were providing adequate services to all of their customers and the entirety of the communities they serve. It was created in large part due to redlining, the act of refusing to lend to certain low-income neighborhoods.

The CRA Off Site Link is intended to “encourage … institutions to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions.” To put it simply, the law examines whether a financial institution is lending to all of its community members, and not withholding credit or loans from low-income or otherwise distressed areas.

A bank’s geographic distribution of branches and services and community development lending activity are all taken into consideration during CRA evaluations. The specific criteria for compliance depend on a bank’s size.

The Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation and the Federal Reserve Board all oversee CRA compliance. All FDIC-insured banks need to comply with the CRA regulations; however, credit unions are not required to abide by the CRA. A bank’s CRA evaluation will depend on how it’s chartered as well as its size.

Banks receive one of four ratings based on a CRA evaluation: Outstanding, satisfactory, needs to improve or substantial noncompliance. While there are no fines associated with noncompliance, an institution that receives a poor evaluation might lose out on certain requests to federal regulators, including the ability to charter a location or merge with another institution.

Poor CRA performance is bad for a bank’s reputation, too.

Sunrise Banks’ CRA File

Under the CRA, banks are required to maintain a public file with their latest CRA evaluation as well steps consumers can take to file comments or complaints relating to the law.

Sunrise Banks’ CRA file is located here.

Read the OCC’s final rule here Off Site Link. Current rules that continue to apply to non-OCC-regulated banks can be found here Off Site Link. For further reading on the law, visit the Federal Reserve’s website Off Site Link.