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I just stumbled across a relatively new swath of right wing postings about how the Federal Government used the Community Reinvestment Act (CRA) to "force" so many financial institutions into making risky loans.  I actually went to this Department of Justice posting  of an opinion issued to the Comptroller of the Currency by Bill Clinton's Assistant Attorney General Walter Dellinger on 15 December 1994.  The most instructive excerpt is:

We believe that Congress has plainly spoken on the question of what enforcement tools are available to the agencies under the CRA. The CRA provides for enforcement only in the application context, requiring that the agencies shall take an institution's record of meeting the credit needs of its community into account when evaluating that institution's application for a deposit facility. Congress specified only this one enforcement mechanism in the CRA, and we do not believe it is permissible for the agencies to employ other enforcement mechanisms, on the authority of the CRA, in the absence of some basis in the text of the statute. Agencies may act only pursuant to delegations of power that are explicit or can fairly be implied from the statutory scheme. See Railway Labor Executives Ass'n v. National Mediation Bd., 29 F.3d 655, 670-71 (D.C. Cir. 1994) (en banc).

    The CRA contains no express directive for the agencies to use any other modes of enforcement, much less such coercive enforcement as cease-and-desist orders and monetary penalties, and there is no basis for inferring such authority from any provision in the statute.


Footnote 7 is even more illuminating as to the nearly complete impotence of the CRA to "force" anybody to do anything.


The case law recognizes that while the agencies are authorized to refuse to approve applications from financial institutions that do not meet the credit needs of their communities, they are not required to do so. In one case that involved a challenge to an agency's approval of an institution's application to open a branch office, the court refused to invalidate the approval on the grounds that the agency and the requesting institution had allegedly failed to comply with the requirements of the CRA. Corning Sav. & Loan Ass'n v. Federal Home Loan Bank Bd., 571 F. Supp. 396 (E.D. Ark. 1983), aff'd, 736 F.2d 479 (8th Cir. 1984). The court stated that "[t]he CRA itself does not provide for any sanctions for an unsatisfactory record, nor does it even define what an unsatisfactory record would be. The CRA merely requires that the Board assess an institution's community credit record and consider that record when evaluating branch applications."

Go to the link and read the entire text for yourself.  If you are persuaded that the CRA enforcement mechanisms described made it the incredibly powerful blunt force instrument the right wingers contend, maybe you will support my idea.  Modeled on the draconian punishment threat of the CRA, lets revise drug trafficking laws to eliminate criminal sanctions and even civil fines and penalties.  If caught, just empower the police to deny drug dealers any ability to expand their business, take on new customers, or merge with other dealers.   Obviously, if like the banks,  they were denied the ability to do any of those things, they would be compelled to just pack it in and give up.  Hell, the CRA sanctions were so scary that financial institutions not even covered by the CRA were intimidated and fell in line.                                                  

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Comment Preferences

  •  My wife wrote a long paper (3+ / 0-)

    on the CRA for her master's degree [Master's of Regional Planning] a few years ago, and I read and reread her paper, as well as a lot of the supporting government documents, and it's abundantly clear to me that the right's blaming the CRA for our societal woes is a pile of crap.

  •  Excellent work. Very funny! I've been pounding on (4+ / 0-)

    these same errors for a number of years.

    The true culprit was the excessive focus on securitizing sub prime loans (which, by the way, Fannie, Freddie, FHA, and no one resputable was ever involved in). The first time I argued that making high dollar mortgages to dead beats is a recipe for disater was around the mid ninties, and no reading of the CRA can reasonably interpret that as being included in the Statute

    There can be no protection locally if we're content to ignore the fact that there are no controls globally.

    by oldpotsmuggler on Tue Feb 12, 2013 at 07:53:30 PM PST

  •  The CRA made lending safer. (3+ / 0-)
    Recommended by:
    Odysseus, ScienceMom, Deep Texan

    By making sure that people in redlined areas has access to plain, old, vanilla bank loans - by banks that would actually hold those loans and apply some reasonable standards - it helped to reduce the number of dangerous, unaffordable loans made by non-bank lenders with names like Ameri-screw-you Mortgage Barn.

    It also imposed an affordability requirement on those loans in order for them to be counted for CRA credit - a standard that non-CRA-covered institutions didn't have to meet.

    This is a bit part of the reason why CRA-covered banks had much lower rates of loan default than non-CRA-covered lenders.

    I can't believe there are still people pushing this garbage argument.

    Art is the handmaid of human good.

    by joe from Lowell on Tue Feb 12, 2013 at 08:18:51 PM PST

  •  The problem with the CRA was/is that (2+ / 0-)
    Recommended by:
    ScienceMom, nextstep

    it provided an opportunity for citizens to challenge expansions and mergers and consolidations and take a look at the financial institution's books to determine whether they had, in fact, satisfied the commitment to reinvest in the communities from which they collected dollars. It was the prospect of being inspected that drove them crazy and accounts for why, whenever ACORN sued for the information, they paid them off to the tune of hundreds of thousands of dollars.
    Dodd/Frank makes the situation worse for the banks. Now it isn't just citizens who can call for an inspection of their books (inspection reveals how the entity does business) there are now provisions in the law which initiate routine inspections by the Consumer Protection Bureau. Information is power. For the government to get a look at bank books spells impotence.
    Of course, as usual, they can't admit to the real problem because that would admit what they fear and give the "enemy" an advantage. So, just as they were left nattering about death panels in regards to the ACA, they are left nattering about CRA in regard to Dodd/Frank.
    In a sense, CRA has become code. It stands for something other than it says. But what happens is that all their dissembling ends up confusing themselves. So it is fair to conclude that they don't know what they want and giving them what they ask for is worthless.
    However, understanding their methods is worth something. It helps us avoid wasting our time.

    We organize governments to deliver services and prevent abuse.

    by hannah on Tue Feb 12, 2013 at 11:05:20 PM PST

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