The Community Reinvestment Act (CRA) in banking is a landmark U.S. federal law enacted in 1977. Its core purpose is to combat redlining by requiring federally insured banks to help meet the credit needs of all communities they serve, especially low- and moderate-income (LMI) neighborhoods.
Why the CRA in banking was created
The CRA was a direct response to the systemic practice of redlining, where banks and other lenders drew literal red lines on maps around certain neighborhoods, often based on racial or ethnic composition, and refused to offer mortgages, business loans, or other credit there. This discriminatory practice locked generations of residents out of homeownership, small business capital, and wealth-building opportunities. The law was designed to reverse that legacy by placing an affirmative obligation on banks: if you take deposits from a community, you must reinvest in that community. The CRA’s purpose is not just to prohibit discrimination but to actively encourage lending, investment, and services in LMI areas so that access to credit is fair and equitable across all income levels.
Which banks must comply with the CRA
The CRA applies to all federally insured depository institutions, including national banks, state-chartered commercial banks, and savings associations. In practice, this covers the vast majority of retail banks operating in the United States. Enforcement is shared by three federal banking regulators: the **Office of the Comptroller of the Currency (OCC)** for national banks, the **Federal Reserve Board (FRB)** for state-chartered banks that are members of the Federal Reserve System, and the **Federal Deposit Insurance Corporation (FDIC)** for state-chartered banks that are not Fed members. These agencies periodically examine each institution’s record of serving LMI communities, and they publicly disclose the resulting CRA ratings and performance evaluations.
How CRA performance is evaluated
Regulators evaluate a bank’s CRA performance using three distinct tests, each measuring a different dimension of community reinvestment. The **Lending Test** assesses the volume, distribution, and geographic spread of loans to LMI borrowers, small businesses, and underserved areas. The **Investment Test** examines the bank’s community development investments, such as funding affordable housing projects, community facilities, or small business development initiatives. The **Service Test** evaluates the accessibility of the bank’s physical branches, ATMs, and financial education programs in LMI neighborhoods. For each test, the bank’s performance is measured within its **assessment areas**, the specific geographies, typically defined by where the bank maintains deposit-taking branches or ATMs, where its CRA obligations are concentrated. After the evaluation, the bank receives one of four overall public ratings: **Outstanding**, **Satisfactory**, **Needs to Improve**, or **Substantial Noncompliance**. Community organizations and individuals are encouraged to submit comments during the evaluation process, giving local voices a direct role in shaping a bank’s CRA record.
CRA asset-size thresholds and current rules
The specific examination procedures and criteria vary based on the institution’s asset size, which determines the regulatory framework applied. Under current thresholds, banks are classified as **Small** if they have less than $412 million in assets, **Intermediate Small** if they have between $412 million and less than $1.649 billion, and **Large** if they have at least $1.649 billion. Small banks face a streamlined evaluation, while Intermediate Small banks are assessed under a modified framework that includes a community development test. Large banks are subject to the full three-test evaluation described above. In October 2023, the federal banking agencies adopted major modernization changes to the CRA rules, but those changes are currently under a preliminary injunction and are not in effect. The proposed new thresholds would define a “small bank” as less than $1 billion, an “intermediate bank” from $1 billion to $10 billion, and a “large bank” as more than $10 billion, but until the injunction is lifted, the existing thresholds remain the operative standard.
How the CRA affects bank mergers and expansions
The most powerful practical lever of the CRA is its role in bank merger and expansion approvals. When a bank applies to regulators for permission to merge with another institution, acquire a bank, or open new branches, its CRA performance is a mandatory consideration in that decision. A poor CRA rating, particularly a “Needs to Improve” or “Substantial Noncompliance” rating, can delay, condition, or even block a proposed merger or acquisition. Conversely, a strong CRA record can smooth the path for expansion and signal to regulators that the bank is a responsible corporate citizen. This creates a direct financial incentive for banks to invest in LMI communities, because their ability to grow and compete depends on maintaining a satisfactory or better CRA rating. The public disclosure of CRA ratings also means that community groups and advocates can formally object to an application, making the CRA a genuine accountability mechanism rather than a mere paperwork exercise.
