Before you opt out of reading today’s Post, let me give you one reason you need to take five minutes to continue reading.
The Community Reinvestment Act (CRA) was created to benefit you – the consumer and business owners.
Let’s be more specific and to the point. The leading financial partner of money smart consumers is their bank. It is to your advantage to learn everything you can about how a bank functions, including what goes on behind the scenes. Why? I can give you a quick and easy response to that question. It’s because your financial institution is maintaining your money and providing an infrastructure for you to manage it. Doesn’t it make sense that you should have a working understanding about how a bank runs, including the federal and state regulations that oversee it? In the end, you as a consumer and/or business owner will enjoy a much more productive and transparent relationship.
Today’s Post is not going to dig into the deep detail of CRA because, frankly, you as a consumer don’t need it. Instead, we want to provide you a general overview of what it is and give you a selection of videos and resources to read at your leisure to fill in the details. By the time you are done with our Tips to Read and Homework, you’ll have a solid understanding of CRA.
What is the Community Reinvestment Act?
Since CRA was enacted in 1977, banks have been required to essentially support the growth and prosperity of its local communities. According to the Federal Reserve Bank of San Francisco, “The Community Reinvestment Act (CRA) encourages banks to help meet the credit needs of the communities they are chartered to serve, including the low- and moderate-income neighborhoods in those areas.” To be clear, banks are required because of regulation to provide financial (via lending and investment) and services support to their surrounding communities. In addition, many banks offer financial literacy workshops and training as a partial fulfillment of CRA. (See the OCC’s Community Developments Fact Sheet for examples of these services.)
Banks undergo a periodic CRA exam whereby FDIC examiners review bank records to review the bank’s CRA performance. You can see a list of scheduled CRA exams posted at the Federal Financial Institutions Examination Council’s (FFIEC) website. Looking back on my years in banking, I recall management, the head of compliance officer, and key department heads always keeping their thumb on the pulse of CRA. Bankers take CRA very seriously. If the FDIC examiners come back with a poor CRA rating, the result can really create big-time headaches for an institution. Depending on how poor the rating, a bank’s branch expansion and mergers and acquisition activity will come to a standstill until its CRA rating is improved.
Why CRA matters to you
I recognize that for many of our readers, the Community Reinvestment Act seems like a world away from the traditional personal finance topics that apply to their money life. But, CRA really does matter to you for a variety of reasons. We briefly referenced some of these reasons above, but to wrap up today’s Post, let me provide you a sampling (not all inclusive) of other benefits below.
√ Affordable housing. Involves the bank in what is referred to as community development. These lending activities can go to support affordable housing for low to mid-income families.
√ Promote economic development via lending. Provides lending financing to businesses up to a certain gross annual revenue or size eligibility requirements as determined by the Small Business Administration. Also it provides lending financing for not-for-profit organizations that serve low to mid-income communities.
√ Provide “qualified investments.” The bank offers grants, deposits or shares to qualified entities.
√ Teach financial literacy programs. A bank representative or third-party representative teaches financial education or provides literacy curricula for low and mid-income individuals. (The photo above is of me in my banking years when I taught a financial literacy class to middle grade school children.)
Thanks to the Internet, bank customers, community leaders, and others don’t need to be in dark about what the Community Reinvestment Act is or the benefits it can mean to a community. We encourage you to bookmark this Post and carve out the time to review the Tips to Read and Homework. Also, please share this link with those in your life circle who will find it helpful.
We at MoneyBasicsU.com believe that personal finance knowledge extends well beyond the borders of understanding saving, lending, credit cards, and other financial literacy topics. A solid understanding of the complex world of banking will have valuable returns both in know-how and money to your bottom line.
Tips to Read:
Directors’ College Video Series – The Community Reinvestment Act was published on Youtube in 2013 by the FDIC. Although targeted for bank directors, it provides a helpful overview of what CRA is all about. The video is about 30 minutes.
Below is a selection of videos and articles that provide more information on CRA.
1. VIDEO: What is the Community Reinvestment Act?, Federal Reserve Bank of San Francisco, August 21, 2015
2. Want to look up public information about a specific bank using the Internet? Check out the Office of the Comptroller of the Currency website.
3. Do you know the results of your bank’s latest CRA exam? Visit the FDIC’s CRA Ratings search landing page and look up your bank. At minimum, if you provide the name of the bank and state, a result should appear. If you want an explanation about the rating system, the Frequently Asked Questions link will provide the details.
4. Curious about the standards reviewed on a bank’s performance during a CRA exam? The Federal Reserve Bank of Atlanta provides an article on this topic.