Community Reinvestment Act Passed to Combat Redlining, Banking Industry Resists

President Carter signs the Community Reinvestment Act (CRA), requiring banks to meet the credit needs of their entire communities, including low- and moderate-income neighborhoods previously redlined by lenders. The law responds to decades of documented discriminatory lending that drained deposits from minority communities while denying them mortgage credit. Senator William Proxmire champions the legislation, stating banks have “an affirmative obligation” to serve all communities where they take deposits.

The CRA creates a framework where federal regulators evaluate banks’ lending records in their communities and consider these records when approving bank mergers, acquisitions, and branch applications. However, the banking industry immediately mobilizes to weaken implementation. The American Bankers Association labels the law “credit allocation” and government interference in private lending decisions. Banks successfully lobby for weak enforcement mechanisms: the law lacks specific lending requirements, penalties for non-compliance, or private right of action for communities to sue.

For its first 15 years, the CRA remains largely toothless. Regulators issue almost no negative ratings, and banks face few consequences for poor community lending records. Community groups like ACORN and the National People’s Action must organize sustained protests and file formal challenges during merger applications to pressure banks into CRA agreements. When enforcement tightens in the 1990s under Clinton administration revisions, banks respond by expanding subprime lending through non-bank subsidiaries not covered by CRA, ultimately redirecting predatory rather than prime lending into minority communities. The CRA’s history demonstrates how industry capture of enforcement can neutralize legislative intent while appearing to address the underlying problem.