Community Reinvestment Act

Concerned that banks and thrifts were unresponsive to credit needs in low- and moderate-income areas, Congress enacted the Community Reinvestment Act of 1977 (CRA) CRA requires federal bank and thrift regulatory agencies to encourage institutions to help meet credit needs in all areas of the communities that they serve, consistent with safe and sound operations. CRA also requires the regulators to assess institutions' CRA performance during examination and to consider that performance when evaluating institutions' applications for expansion or relocation of operations. Growing concern about the effectiveness of CRA's implementation and its regulatory burden on institutions led to the recent revision of CRA regulations. This report addresses the following four questions: (1) what were the major problems in implementing CRA, as identified by the affected parties--bankers, regulators, and community groups? (2) to what extent do the regulatory reforms address these problems? (3) what challenges do the regulators face in ensuring the success of the reforms and what actions would help regulators face these challenges? and (4) what initiatives have been taken or proposed to help bankers overcome community lending barriers and enhance lending opportunities, particularly in low- and moderate-income areas?

GAO found that: (1) bankers, community groups, and regulatory officials generally agree that there is too much reliance on bank documentation efforts and processes, and that CRA examinations are inconsistent and do not accurately reflect the lending institutions' compliance or performance; (2) revised CRA regulations clarify the data used to assess results against performance-based standards, but the affected parties disagree about whether the data collection requirements provide for meaningful performance assessment or are unduly burdensome; (3) differences in examiner training and experience, vague interpretations of CRA standards, and inadequate information and time for implementing CRA performance ratings challenge regulators as they implement CRA regulations; (4) bankers, regulators, and community groups are taking part in a variety of individual and cooperative initiatives to improve community lending and reduce related burdens; (5) barriers to community lending and investment include the higher costs and risks associated with community lending and the underwriting requirements of major participants in secondary mortgage markets; and (6) Congress has considered proposals to amend CRA that would reduce the compliance burden and exempt small institutions from CRA requirements.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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