Equality of Opportunity and Investment in Creditworthiness

The Community Reinvestment Act (CRA) was enacted in 1977. Its vague provisions initially resulted in only modest enforcement efforts by regulators, and the law received scant attention from academics. The CRA was reinvigorated in the late 1980s. The change occurred in part when the statute was amended in 1989, notably by requiring banks' CRA ratings to be disclosed publicly. Perhaps just as importantly, the change occurred as regulators made enforcement of the Act a higher priority, both before and especially after the election of President Clinton in 1992.' This second incarnation of the CRA has created a furor in the banking community and has attracted a rapidly growing body of academic literature.The time is thus opportune for a critical examination of the CRA, as Professor A. Brooke Overby performs in The Community Reinvestment Act Reconsidered.' In this short Paper, I cannot comment on many of the interesting and provocative points made in Overby's article. Instead, I will consider some implications of two of her points. First, Overby makes the linguistically surprising argument that the CRA "has little, if anything, to do with 'community.'" Overby's examination of the legislative history shows that the CRA as introduced was targeted especially at disinvestment, which occurs when the deposits taken from a community are not invested back into that community. Overby shows how these disinvestment provisions were largely stripped from the law as enacted." The CRA can thus plausibly be understood as primarily directed toward the problem of redlining, which occurs when banks or other lenders refuse to loan based on the neighborhood, rather than on the characteristics of a particular borrower.