CRA Reform: What Retail Bankers Must Know Now

The Community Reinvestment Act (CRA) was passed in 1977 to counteract redlining and underfunding of local communities. It calls for the Federal Reserve and other federal banking regulators to encourage financial institutions to assist in meeting the credit needs of the communities where they conduct business, including LMI areas.

The financial services sector has seen significant development over the past three decades, resulting in the increasingly online and mobile banking environment we currently experience. Even though many Americans have not set foot in a bank branch in years, the original CRA uses bank branch footprints as its primary measurements.

CRA also faces difficulties in figuring out whose actions should be recognized in assessments and how much credit they should receive. Bankers and examiners have been unsuccessful in their efforts to put the act and its accompanying regulations into practice and oversee them by this lack of clarity.

Proposal to Include Deposit and Credit Products

In contrast to the current regulations, the proposal places a far greater emphasis on financial inclusion. It pursues this objective in two crucial ways:

By introducing new guidelines to ensure that small enterprises and LMI communities have access to and may make use of deposit and credit services and products. These products or services are relevant to their needs.

By broadening the notion of community development to incorporate fresh standards designed especially to help the most underprivileged.

Banks will be required to follow quantitative benchmarks with respect to branch availability for customers who still want to obtain their financial services and/or goods in person.

Additionally, the idea will give more favorable treatment to branches with low or extremely low branch access. There will also be established benchmarks in terms of accessibility and responsiveness for customers who choose to purchase financial services and/or products online.

The recommendation involves utilizing two sets of metrics: one to measure the bank against peers and another to assess how lending is dispersed among borrowers and geographies based on market and local data.

The proposal calls for the implementation of a new data gathering system with disclosure and reporting requirements in order to create all the new benchmarks and metrics.

Final Words

The update is both urgently required and significant. However, if it becomes law, banks would have to undertake significant CRA programme adjustments. The CRA does not apply to credit unions or nonbank suppliers of financial services. The article has been published by the editorial board of the Fintek Diary. Happy Reading. For more information please visit

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