Community Reinvestment Act (CRA): What It Is & Proposed New Changes 

May 1, 2023

The Community Reinvestment Act (CRA) helps bring responsible loans to low-income communities that need capital to grow. Changes have been proposed to make the law even more impactful. 

History of the Community Reinvestment Act (CRA) 

CRA encourages FDIC-insured depository institutions, a.k.a. banks, to lend to the entire community of borrowers and small business owners. It was first enacted in 1977 to prevent redlining, and since then it has evolved to continue reversing systemic gaps in capital access.  

While some borrowers have the credit history, cash flow and income to qualify for traditional loans, others do not and are considered “high risk”. But in order for less established borrowers to build a credit history, someone must approve them for credit. That’s where CRA comes in.  

Through CRA, banks are encouraged to lend to customers from all corners of the community spectrum. While they are not required to earn “CRA credits”, the amount of lending a bank has done in underserved communities is taken into consideration when the bank applies for a charter, new branches, mergers, and other corporate activities connected to growth. 

Several factors make it difficult for large and traditional banks to provide loans to small businesses, especially those in underserved communities. 

  • These businesses need loans in lower amounts that banks can’t offer efficiently 
  • Regulations prevent banks from lending to higher-risk borrowers 

To help overcome these challenges, banks often invest in community lenders like CDFIs, which are mission-driven and active in their local communities. When the bank’s investment dollars are lent responsibly to underserved communities, the bank receives CRA credit. 

Changes to CRA for a Modern Community of Borrowers 

CRA law has not been significantly revised since 1995. In May of 2022, the major organizations that oversee bank activities—the Federal Reserve Board, the FDIC, and the Office of the Comptroller of the Currency (OCC)—proposed more changes to promote more community engagement and financial inclusion.  

  1. Accommodate online lending, mobile banking, and branchless banking activities 
  1. Increase clarity and consistency of CRA eligibility and metrics 
  1. Adjust evaluations to take the bank’s size and type into consideration 
  1. Expand access to credit, investment and banking services in low- and moderate-income areas 
  1. Encourage bank activities that respond to community needs  

These changes would keep the financial industry on a path toward evolution and inclusion, as the small business ecosystem grows at lightning speed.