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Economic Development and Human Capital

The Federal Reserve Is Updating the Community Reinvestment Act. Here’s How You Can Help.

Julie Gunter

January 13, 2021

The Federal Reserve is seeking your feedback on updates to the Community Reinvestment Act (CRA) through Feb. 16. Whether you are a community-service organization member, an economic development professional or simply interested in helping communities in our region thrive, your comments and ideas are a critical part of ensuring an inclusive financial services industry.

Why Does the CRA Matter?

Enacted over 40 years ago as part of a series of civil rights laws, the CRA was designed to encourage banks to lend to all segments of a community and eliminate the illegal practice of redlining, or the discriminatory policies that historically prevented lending in mostly-minority neighborhoods.

While the CRA and other consumer protection laws are making headway, the lingering effects of these discriminatory practices are still evident. This has led to significant financial challenges for low- and moderate-income (LMI) communities across the U.S. and here in the Texas region.

“The Texas economy has extraordinary strengths, but certain key entrenched barriers limit opportunity for many people in our region,” said Dallas Fed President and CEO Rob Kaplan. “The CRA plays an important role in addressing this by helping ensure all communities have access to the credit and financial services they need to thrive. The Fed is modernizing the act to make sure it remains strong and effective. So it’s imperative that we get input from organizations and individuals who have direct knowledge of local needs.”

How Does the CRA Support Communities?

The CRA plays a vital role in supporting economic opportunity in both rural and urban communities. A few years ago, for a report commemorating the CRA’s 40th anniversary, our research estimated that the law brings about $6 billion in lending and investment annually to Texas’ LMI communities.

We’ve also heard from community leaders who have seen the CRA positively impact the people they serve.

“The CRA is the linchpin of our nation’s community development finance sector, opening access to capital and fair financial services for people and places that do not already benefit from structural advantages in our society,” said Noel Poyo, the San Antonio-based executive director of the National Association for Latino Community Asset Builders. “The CRA encourages regulated banks to partner with community development organizations to build bridges for low- and moderate-income people into the mainstream of our economy.”

Donna VanNess, president of affordable housing provider Housing Channel in Fort Worth, notes that the CRA has played a significant role in the organization’s ability to spur private-sector capital investment in underserved communities.

“We rely on tools such as lower financing costs backed by CRA incentives to be able to provide housing that is affordable to lower-income households,” VanNess said. “CRA capital investment enables nonprofit developers to fill the financial gap created by high development costs to deliver quality projects.”

Why Update the CRA Now?

Over the decades, CRA rules have been updated but have not kept pace with changes in banking, including mobile and online banking. The current effort to modernize the CRA has three main objectives:

  1. Strengthening and updating the regulations to ensure a wide range of LMI banking needs are met.
  2. Providing greater clarity, consistency and transparency in banks’ performance evaluations.
  3. Providing a foundation for three national regulatory agencies—the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency—to converge on a consistent approach to supervision and evaluation of bank compliance through the CRA.

How Can You Help?

Learn more at the Federal Reserve Board’s website and submit feedback before the comment period closes on Feb. 16, 2021.

Author

Julie Gunter

Gunter is senior community development advisor at the Federal Reserve Bank of Dallas.

The views expressed are those of the author and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.

CRAFinancial StabilityConsumer CreditAffordable Housing

Promoting the economic resilience and mobility of underserved communities.

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