Monday, September 28, 2009

Community Reinvestment Act

one of the most important and controversial pieces of financial legislation in recent years is the Community Reinvestment Act, singed into law by President Jimmy Carter on October12,1977. Under its terms financial institutions are required to make an " affirmative effort" to meet the credit needs of low- and middle-income customers, including households, small businesses, farms, and ranches. Moreover, the regulatory authorities are required to consider the performance of lending institution in meeting these community credit needs when processing applications for merges, new branch offices, corporate charters, and holding company acquisitions by these same lending institutions.
Each commercial and savings banks must define its own local "trade territory" and describe the services that it offers or is planning to offer in that local area. Once a year each institution must prepare an updated map which delineates the trade territory served, without deliberately excluding low- or moderate-income neighborhoods. The lending institution's board of directors must adopt a CRA Statement, which specifies that lender's trade territory and lists the principal types of credit offered in that territory. A notice must be posted in the lobby, alerting customers to their rights and where the institution's CRA Statement may be found. Customers are entitled to make written comments concerning the lender's performance in meeting local credit needs. These comments must be retained on the premises for at least two years and be available for public inspection. The basic purpose of the Community Reinvestment Act is to avoid "gerrymandering" out low-income neighborhoods and other areas that the lender may consider undesirable.

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