The Community Reinvestment Act’s Harmful Legacy

How It Hampers Access to Credit

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This paper discusses how depository and lending institutions can best benefit communities by increasing residents’ access to credit, and what role, if any, the Community Reinvestment Act of 1977 (CRA) ought to play. It details the background, original justifications, and historical application of the CRA to banks and thrifts as well as credit unions’ exemption from it. It also describes how the Act has worked out in practice, and makes the case that the best way to increase access to credit and achieve the stated goals of the Act is by not mandating CRA at all, but rather to deregulate credit unions and make compliance with CRA voluntary for both banks and credit unions. In the short term, the government should limit CRA’s reach and level the playing field between banks and credit unions by exempting smaller banks and thrifts from the Act.