The Community Reinvestment Act

CDFIs help banks meet CRA requirements

The Community Reinvestment Act (CRA) was passed by Congress in 1977 as part of an effort to ensure banks met the credit needs of all communities. The Act established a community reinvestment standard for banks to follow. Each bank is evaluated regularly by the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), or the appropriate Federal Reserve Bank depending on bank charter. These agencies evaluate each bank based on size criteria and assign a grade ranging from Substantial Noncompliance to Outstanding, reflective of how well they are meeting credit needs of borrowers in their service areas. These grades are critical to a bank’s growth since a negative rating can slow or even prevent a bank from merging or expanding.

In an attempt to strengthen the regulations and ensure the CRA is an effective tool for getting credit to all communities and their borrowers, the bank regulators issued revised regulation in 1995. Since these changes, banks have become the fastest-growing lending source to CDFIs. A figure from CDFI Futures: An Industry at a Crossroads by Jeremy Nowak displays this trend. As the graph points out, since 2001, banks have dramatically grown as the provider of debt capital to CDFIs.

Like many CDFIs, CRF has benefited from this trend. Throughout our history, banks have been a key partner for CRF. Since our inception in 1988, we have partnered with more than 30 banks, securing more than $214 million in the form of Program Related Investments (PRIs), Equity Equivalent Investments (EQ2s), grants and other sources.

CRF is always looking for innovative ways to work with banks to support communities. In 2014, CRF authored a comment letter to the Bank Regulatory Agencies, urging them to give positive consideration for banks that have developed structured referral relationships with CDFIs. When a prospective borrower falls just outside of a bank’s lending requirements, it can often mean the end of a dream for an entrepreneur but a referral relationship can change that outcome. We believe banks that refer their “near misses” to partner CDFIs should be rewarded for their efforts to help borrowers find appropriate credit products. To learn more read our comment letter on the topic.

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