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The Fed has proposed changing the way the Community Reinvestment Act is implemented. How could that impact our communities, and does the public have a voice in the process?

Susan Schaaf
Susan Schaaf, Senior Examiner, Supervision & Regulation

As appeared in the Cleveland Fed Digest's Ask the Expert on 11.17.2020

Issue #39 | November 17, 2020

The Community Reinvestment Act (CRA) helps increase people’s access to credit, such as mortgages and loans to small businesses and small farms, and the availability of financing for projects in places that need the money due to disinvestment. When people and businesses are able to access funds for improvements, entire communities benefit from the wealth that’s built. In particular, the CRA seeks to encourage wealth building in low- and moderate-income communities. The Federal Reserve is soliciting public input on what’s called our advance notice of proposed rulemaking because we’re proposing modernizing the way the CRA is implemented and emphasizing more support for minority communities. We’re really trying to address racial inequities and income disparities that persist today.

In a perfect world, the CRA would help enable anyone who needs, and qualifies for, a loan to get a loan. People would have access to money they need to buy their first home, fix up their home, or move. Entrepreneurs would have access to funds to start and expand businesses. A CRA with clearer guidelines should lead to more homeownership, more affordable housing, and more small businesses in communities, and that would mean more jobs and more wealth building. We would also see more nonprofits getting the dollars they need (banks can receive CRA “credit” for loans and donations to nonprofits), and those nonprofits would be better able to respond to their constituents’ needs. You could say, too, that communities would enjoy access to financing to invest in projects important to them.

The public can have a voice in this process and has until February 16, 2021, to comment. The Federal Reserve will use the feedback and our own research to write our proposed rule. We are seeking comments on a total of 99 questions as we design our proposed rule for changes to how we implement the CRA. Among those questions is, given the nation’s current challenges, what modifications and approaches would strengthen the CRA to address ongoing systemic inequity in credit access for minority individuals and communities? We ask whether CRA consideration should be given for lending in certain places including Appalachia and whether banks should receive CRA consideration for loans, investments, or services involving a community development financial institution (commonly called a CDFI) anywhere in the country.

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Susan Schaaf is a senior examiner with the Cleveland Fed and a member of the team that wrote the advance notice of proposed rulemaking, through which the Federal Reserve seeks comments on changes to how the Community Reinvestment Act (CRA) is implemented. Susan has evaluated how well banks meet CRA regulations for more than 15 years.


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