By Eugene T. Lowe
October 18, 2010

Representative Luis V. Gutierrez (IL) introduced H.R. 6334, the American Community Investment Reform Act, on September 29. The measure would significantly expand the Community Reinvestment Act (CRA) by increasing public involvement and penalizing poor CRA performance. Representatives Al Green (TX), Eddie Bernice Johnson (TX) and Maxine Waters (CA) are cosponsors of the legislation.

Originally passed in 1977, CRA has been one of the most important laws for building wealth and revitalizing neighborhoods, requiring banks to meet the credit needs of all communities consistent with safety and soundness. In general, CRA requires financial institutions to provide credit services, deposit services, transaction services and community development services to the communities in which they are chartered to do business.

H.R. 6334 would expand CRA to a variety of non-bank financial institutions including independent mortgage companies, investment banks, and hedge funds. Credit unions would be exempt. Nevertheless, the National Community Reinvestment Coalition (NCRC) says that, “As a result of its broad application of CRA throughout the financial industry, the bill would leverage hundreds of billions of additional dollars for loans, investments, and services to low-and moderate-income communities.”

Community development lending and investments that finance affordable housing, economic development and community facilities would be weighed at least equally with any other factor in bank exams. This is not presently the case. CRA exams would become more rigorous. It will be more difficult for a financial institution to get an Outstanding rating; the institution must receive at least three Satisfactory ratings in a row before it can apply for an Outstanding rating. And while the exam for the rating is in process, public input is required.

There are other significant provisions in the bill, such as the opportunity for public comment into how a financial institution can improve in geographical areas where its performance is weak. An institution can also be downgraded if it offers a product that the new Bureau of Consumer Financial Protection (authorized in the Wall Street Reform Act) deems to be unfair, deceptive or abusive.

The U.S. Conference of Mayors has very strong policy in support of the expansion of CRA. The policy adopted at the annual Conference of Mayors meeting in Providence in June 2009, “calls on Congress to pass an expanded Community Reinvestment Act (CRA) that would leverage substantial sums of additional credit and capital for America's working families and communities.”