Early in the 1970s, community groups and later research institutes began to report the phenomenon of redlining; banks and insurance companies refusing to operate in racially minority and low-income neighborhoods. As a result of community activist pressure, in 1975 Congress passed the Home Mortgage Disclosure Act (HMDA), followed in 1977 with the Community Reinvestment Act (CRA). CRA, which provides that regulated financial institu-tions have a continuing and affirmative responsibility to try to meet the credit needs of the communities in their service areas (now assessment areas) including low- and moderate-income communities, was only weakly enforced in the 1980s.

Better enforcement of the law in the 1990s was the result of amendments to HMDA in 1989 the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) which added new data disclosures, the advent of the Clinton presidency in 1992, and new CRA regulations in 1996 which emphasized CRA outcomes over processes. More recently, however, the admin-istration of President Bush has massively reduced emphasis on regulation in general. Bush appointments to bank regulatory agencies are actively hostile to the CRA. In addition, new mortgage and consumer lenders, often operating in low-income and minority communities, have engaged in predatory lending--extending loans with excessive interest rates and fees, and damaging terms and conditions that have resulted in very high levels of default of home mortgage loans, home foreclosures, and deepening spirals of debt for many consumers. Moreover, an increasing percent of assets in the financial services sector are in institutions not covered by CRA legislation, especially independent mort-gage companies and the subsidiaries of bank holding companies that are not subsidiaries of regulated banks. Major research studies from such institutions as the Federal Reserve Board and the Joint Center for Housing Studies at Harvard University have shown that the CRA in the 1990s significantly increased home mortgage lending in lower-income and minority communities and that the bulk of both CRA related home mortgage lending and small business lending is profitable for the lending institutions.

• The Home Mortgage Disclosure Act (HMDA) requires financial institutions to submit data containing the race, income, gender, and approval status of the applicants for home mortgage loans, along with the income and minority composition of the community in which the loan is made. Since 1996, banks have been required to submit similar, though less comprehensive, informa-tion on their small business lending. These data are publicly available. Starting January, 2004, regulated financial institutions will also have to provide the annual percentage interest rates on all high interest home mortgage loans, loans with interest rates at or above 3 percent of U.S. Treasury Notes with corresponding terms. This new requirement is intended to help combat predatory mort-gage lending.


• The Community Reinvestment Act of 1977, building on the disclosure requirements of HMDA, states that banks have a continuing and affirmative obligation to help meet the credit needs of their communities. Using the data to analyze lending patterns in a bank's primary services areas, or assessment areas, the bank's federal regulator provides a periodic report of the bank's lending activity. In addition to lending, banks are evaluated on their grants and investment activity, and the provision of bank services including the presence of branches in low- and moderate- communities. Banks are assigned a grade of Outstanding, Satisfactory, Needs to Improve, or Substantial Non-Compliance based on their lending, investments, and service evaluations. In cases where a bank receives a score of Needs to Improve or Substantial Non-Compliance, federal regulators may deny the banks' applications to expand its operations or merge with another bank. Some of the information and conclusions from these examinations are published in the bank's Public Evaluation or PE.


• CRA has faced numerous political challenges since its enactment from elected officials who are favorable to, and receive election campaign funds from, the financial services industry. Most important, bank regulators have refused to recognize contemporary modes of banking in determining what constitutes a bank for CRA regulatory purposes. In consequence, much of the banking activity of credit card companies, insurance companies, and internet banks is not CRA regulated. While regulators have greatly expanded the scope of CRA public evaluations, however, they have rarely blocked a bank expansion or merger on CRA grounds. Ninety-seven percent of examined banks receive a satisfactory rating or outstanding CRA rating.
• Bank regulators have interpreted the CRA as lacking explicit powers for the examination of banks' record to minorities and in minority communities. Community groups have challenged this interpretation on numerous occasions arguing that the strong relationship between income and race in the United States and patterns of massive housing segregation by race, justify the examination of a bank's record of services to minority households and populations. Currently, discrimination on the basis of race is only briefly cited in CRA public evaluations and only in the context of the Fair Lending Act. This act protects indivi-dual minority borrowers from discrimination but does not require a bank to provide banking services to minority communities
• References
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• Apgar, William, Allegra Calder, and Gary Fauth. 2004. Credit, Capital, and Com-munities. Cambridge, MA: Joint Center for Housing Studies.
• Board of Governors of the Federal Reserve System. 2000. The Performance and Profit-ability of CRA-Related Lending. Washington D.C.: GPO.
• Fair Finance Watch. www.fairfinancewatch.org.
• National Community Reinvestment Coalition. www.ncrc.org.