Credit Where It Counts: The Community Reinvestment Act and Its Critics


Despite the depth and breadth of U.S. credit markets, low- and moderate-income communities and minority borrowers have not historically enjoyed full access to credit. The Community Reinvestment Act (CRA) was enacted to help overcome barriers to credit for low- and moderate-income communities, and minority borrowers. Scholars have long leveled numerous critiques against CRA as unnecessary, ineffectual, costly, and lawless. But I argue, using recent empirical evidence, that CRA has enhanced access to credit for low-income, moderate-income, and minority borrowers at relatively low cost. I contend that market failures and discrimination exacerbate credit problems in low-income and minority communities and justify CRA. Critics argue that if such problems exist, there are better alternatives to CRA. By contrast, I argue that CRA should not be abandoned in favor of existing alternatives, such as the Home Mortgage Disclosure Act, the Equal Credit Opportunity Act, the Home Owner’s Equity Protection Act, and government subsidies, and that CRA compares favorably with other alternative forms of regulation and subsidies that could be deployed. In sum, contrary to previous legal scholarship, I demonstrate using recent empirical evidence that CRA has been successful in expanding access to credit for low-income, moderate-income, and minority households at a reasonable cost. I also suggest further enhancements to CRA designed to respond to valid critiques and to build on its past successes.


Banking and Finance Law

Date of this Version

August 2004