AARP Hearing Center
Background
Banks are granted charters to help meet the needs and convenience of the communities where they are located. To further that goal, the federal Community Reinvestment Act (CRA) requires banks to serve all segments of their community. Regulators evaluate banks based on their efforts to meet the credit needs of the communities they serve, particularly low- and moderate-income neighborhoods. Regulators award points for actions banks take that meet the credit needs of their communities, invest in community development projects, ensure the accessibility of services, or a combination of these.
However, the CRA has some major gaps. For example, it does not cover all types of financial institutions or products. For example, nonbank services, such as those offered by credit unions, are not included. Of particular importance to older adults, the act does not specifically award points for providing so-called senior accounts. These bank accounts include features specifically designed to address the needs of older adults, such as lower fees, waived maintenance charges, free checks, easy access to customer service, and sometimes discounts on other services.
Moreover, CRA evaluations are often inconsistent and lack strong performance-driven measurements. Improved data collection and greater involvement of community-based organizations in the development of performance measures would help make CRA evaluations more effective. This would, in turn, help increase the availability of fairly priced financial services in many low-income communities.
Some states have passed their own versions of CRA. In some cases, these state laws address the gaps in the federal law.
COMMUNITY REINVESTMENT ACT: Policy
COMMUNITY REINVESTMENT ACT: Policy
Expanded access to credit for underserved groups
Bank regulators should ensure that all banks fulfill their obligations under the Community Reinvestment Act (CRA). Small banks should not be exempt from the act’s requirements. Each bank should be required to display its current CRA compliance rating prominently on its website. Congress should extend CRA coverage to other industries that offer financial products.
Consistent and comparable metrics should be developed to evaluate how well banks are serving their communities. In evaluating compliance, regulators should consider how an institution, and its subsidiaries or partners, comply with the following:
- state usury laws, which set maximum interest rates that may be charged;
- other statutes regulating check cashing and payday lending; and
- state basic-banking laws.
Assessment areas should coincide with the market for an institution’s products.
CRA assessments should encourage financial institutions to expand access to basic-banking services at reasonable rates for people with low and moderate incomes. They should award points for low-cost bank account options for older adults, commonly known as senior accounts.
Financial institutions should receive credit for offering small loans at reasonable rates with realistic repayment periods.
Banks should be examined to determine whether they effectively market affordable products to consumers with low incomes and assess the services they provide to attract households without bank accounts.
CRA rules should require that regulators assess the activities of bank affiliates engaged in banking, lending, and investment activities. Incentives for increasing high-quality rates and terms should be incorporated into the performance standards for financial institutions under CRA regulations.
Policymakers should explore expanding the jurisdiction of the CRA to include financial services offered by nonbanks.