Thirty years of the Community Reinvestment Act: An Assessment of Intent, Enforcement, and Effectiveness

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Business | Business Administration, Management, and Operations | Political Science | Social and Behavioral Sciences


Jean Didier, Management; Neal Allen, Political Science


In an effort to reduce and further prevent dramatic urban deterioration, the United States Congress passed the Community Reinvestment Act of 1977. It was determined that the decline of America's inner cities could be partially attributed to widespread geographic discrimination in credit availability and unethical lending activities by financial institutions, such redlining and disinvestment. This paper explores the content of the CRA itself, the impetus for the legislation, and the intent and implicit goals of the law. Much of this information is inconclusive as the purpose of and reasons for the CRA have been debated and speculated upon since its enactment due to the statute's great ambiguity. In addition to explaining the responsibility of banks and enforcement by regulators, this paper uncovers the historic and contemporary attitudes and reactions of the banking industry to the CRA. Weak language to guide regulators and a lack of political will for many years after the CRA's passage led to inadequate enforcement and resulted in banks that never fully accepted the regulation. Many different sources and several techniques were employed to ascertain the overall effectiveness of the CRA in meeting its objectives and fulfilling the law's underlying mission. Furthermore, this paper deliberates on the impact of the CRA and its relevance in the 21st century. Most sources indicate that, in practice, the CRA has accomplished its main goals, but due to vast industry changes, among several other factors, the CRA no longer seems to be the most appropriate means for encouraging credit to flow into low- and moderate-income areas - despite its longstanding tradition and establishment in banking regulation.