The Community Reinvestment Act is a 1977 U.S. law passed to address a discrepancy between how often low to moderate income earners should receive financing from lenders and how often they actually receive financing from lenders.
What Does it Do?
The Community Reinvestment Act requires that financial institutions turn over detailed records of their efforts to meet the needs of its communities. Therefore, this act encourages lenders to give out more loans to people and businesses in these areas. In turn, lenders avoid running into any problems with discrimination.
The law doesn’t mandate that lenders provide financing to anyone and everyone. Rather, the act requires that lenders make an effort to meet the credit needs of underprivileged communities. Additionally, background checks help the lender ensure the borrower will be able to repay the loan.
Why Does This Matter?
This act is important as it encourages lenders and financial institutions to make investments in traditionally overlooked neighborhoods. Because of this, lenders are able to promote economic growth and encourage other companies to follow suit. As the old saying goes, “You have to spend money to make money”. Without some outside action to buckle the cycle of poverty, these communities will struggle to become successful.
Before the Community Reinvestment Act passed, many lower income areas were poverty-stricken. Now, these lower-income individuals can get loans, it is much easier for them to purchase homes, manage and plan their finances, and give back to their communities in positive ways.