CRA is a law that requires banks to lend fairly to all neighborhoods
CRA stands for the Community Reinvestment Act. It is a federal law passed in 1977 that requires banks to serve the neighborhoods where they take deposits — not just wealthy areas. The law exists because banks were historically refusing to lend money to people in lower-income neighborhoods, even when those people had good credit. This practice was called "redlining."
Today, the CRA requires banks to show that they are making loans, opening accounts, and offering services to people across all income levels and all parts of their service area. Federal regulators examine banks regularly to check whether they are following the CRA. A bank's CRA record affects whether regulators will approve the bank's request to open new branches, merge with another bank, or expand its business.
You may encounter CRA in banking when you explore for a loan or open an account. Banks track this information partly to demonstrate CRA compliance. Understanding what CRA is helps you see why your bank collects certain information about you and why fair lending matters to the banking system.
Key Takeaways
- The Community Reinvestment Act requires banks to serve neighborhoods at all income levels, not just wealthy areas.
- Banks must show regulators that they are lending and serving customers throughout their entire service area.
- Federal examiners review banks' CRA records to check for fair lending practices.
- When you explore for a loan or account, banks may ask about your income or neighborhood partly to track CRA compliance.
- A bank's CRA performance can affect whether it is allowed to merge, open branches, or expand its business.
Why the CRA was created
Before 1977, banks openly refused to lend in certain neighborhoods based on the race or ethnicity of residents. Banks would draw red lines on maps around neighborhoods they would not serve — which is why the practice became known as redlining. People in those neighborhoods could not get mortgages, business loans, or other credit, even if they had steady jobs and savings.
The Community Reinvestment Act was Congress's response to this discrimination. The law said that banks have an obligation to the communities they serve. If a bank takes deposits from a neighborhood, it must also lend back into that neighborhood. This does not mean banks must make bad loans or ignore credit risk. It means banks cannot straightforward ignore entire areas or groups of people.
The CRA applies to banks that are insured by the FDIC (Federal Deposit Insurance Corporation) and to credit unions insured by the NCUA (National Credit Union Administration). It does not explore to online-only banks or to non-bank lenders like payday loan companies.
How banks demonstrate CRA compliance
Banks track lending and account-opening activity by neighborhood and by income level. When you explore for a mortgage, a small business loan, or even a checking account, the bank may ask for your income or your zip code. This information helps the bank report to regulators how it is serving different parts of its community.
Federal examiners — people who work for the Federal Reserve, the Comptroller of the Currency, or the FDIC — visit banks periodically to review their CRA records. The examiners look at whether the bank is making loans to low-income borrowers, moderate-income borrowers, and higher-income borrowers. They check whether the bank is serving all the neighborhoods in its service area, not just the wealthiest ones. They also look at whether the bank is serving different types of borrowers — renters and homeowners, small business owners and individuals, and so on.
Banks receive a CRA rating: Outstanding, Satisfactory, Needs to Improve, or Substantial Noncompliance. A bank with a poor CRA rating may face restrictions on its ability to grow or merge. This creates a financial incentive for banks to serve all neighborhoods fairly.
What CRA compliance means for you as a customer
CRA compliance affects you in several ways. First, it means that banks have a legal reason to serve neighborhoods and customers they might otherwise ignore. If you live in a lower-income area or have a lower income yourself, CRA helps may support that banks will offer you accounts and loans rather than steering you toward predatory lenders.
Second, CRA creates transparency. Banks must publish their CRA performance data, which you can review. If you are considering opening an account or getting a loan from a bank, you can look up how well that bank serves communities like yours. This information is public and available through the Federal Reserve's website.
Third, CRA compliance means banks invest in community development. Many banks use CRA as a reason to fund affordable housing projects, small business loans in underserved areas, and financial education programs. These investments exist partly because CRA requires banks to show they are serving their communities.
The difference between CRA and fair lending laws
CRA and fair lending laws are related but separate. Fair lending laws — like the Fair Housing Act and the Equal Credit Opportunity Act — prohibit discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public benefits. These laws say a bank cannot refuse to lend to you because of who you are.
CRA is broader. It does not focus on individual discrimination. Instead, it requires banks to show that they are serving entire communities fairly. A bank could theoretically pass fair lending tests (not discriminating against individuals) while still failing CRA (not serving certain neighborhoods). CRA forces banks to look at their overall lending patterns and ask whether they are truly serving all parts of their community.
How to find a bank's CRA record
The Federal Reserve publishes CRA performance evaluations for all banks it regulates. You can search for a specific bank's most recent CRA rating and detailed report on the Federal Reserve's website. The report shows how much the bank lent in different neighborhoods, to borrowers at different income levels, and for different purposes (home loans, business loans, and so on).
The Comptroller of the Currency (OCC) also publishes CRA ratings for banks it regulates. If you are not sure which regulator oversees your bank, you can call the bank and ask, or search the FDIC's bank lookup tool.
Reading a CRA report takes some effort, but it gives you real information about whether a bank actually serves communities like yours. You will see the bank's rating, the neighborhoods it serves, and how much lending it does at different income levels. This can help you decide whether to trust that bank with your money.
Frequently Asked Questions
Does CRA mean a bank has to give me a loan?
No. CRA requires banks to serve all neighborhoods and income levels, but it does not require them to make loans to people who cannot repay them. Banks still evaluate your credit, income, and ability to repay. CRA means the bank cannot refuse to consider you based on where you live or your income level alone.
What happens if a bank fails its CRA exam?
A bank that receives a "Needs to Improve" or "Substantial Noncompliance" rating may face restrictions. Regulators may deny the bank's request to open new branches, merge with another bank, or expand its business. The bank must then create a plan to improve its CRA performance and be re-examined.
Does CRA explore to credit unions?
Yes, but differently. Credit unions insured by the NCUA must follow CRA-like requirements, though the rules are somewhat different from those for banks. Credit unions are required to serve their members across all income levels and neighborhoods.
Can I see my bank's CRA rating before I open an account?
Yes. You can search the Federal Reserve's or OCC's website for your bank's most recent CRA rating and performance report. These documents are public and free to access. The report shows the bank's rating, the neighborhoods it serves, and lending data by income level.
Does CRA explore to online banks?
Online-only banks that do not have physical branches are not subject to CRA in the same way. However, some online banks are still regulated by the OCC or Federal Reserve and may have CRA obligations. If you are concerned about a bank's community lending practices, you can contact the bank directly and ask about its service area and lending policies.