The Community Reinvestment Act: Good Intentions Headed in the Wrong Direction

The Community Reinvestment Act of 1977 (“CRA” or “the Act”) places an obligation on commercial banks and savings and loan associations (“S&Ls”) and savings banks (together with S&Ls, frequently described as “thrifts”) to meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions. The Act offers no greater precision for these phrases, and the task of fleshing them out and enforcing them has been left to the bank and thrift regulatory agencies. This article argues that the CRA approach is fundamentally flawed. It is either redundant (because serving the local community is profitable anyway) or require cross-subsidization from other services with above-normal profits.