The Consumer Financial Protection Bureau (CFPB) recently published an analysis of the Community Reinvestment Act (CRA) laws in seven states and the District of Columbia. The report provides insights into how these states ensure that financial institutions’ lending, services, and investment activities meet the needs of their communities.
The analysis examined CRA laws in Connecticut, Illinois, Massachusetts, New York, Rhode Island, Washington, and West Virginia. It found that many of these states adopted laws similar to the federal CRA in the decades following the landmark federal anti-redlining law’s passage in 1977.
While the federal CRA applies strictly to banks, state reinvestment laws can encompass a range of financial institutions, including nonbank mortgage companies. This is noteworthy given that banks now originate and hold a smaller portion of outstanding mortgage debt compared to when the legislation was first enacted. In 1977, banks held 74% of outstanding mortgage debt, a figure that had dwindled to just 28% by 2007. As of 2021, nonbank mortgage companies originated 64% of conventional home purchase mortgage loans, compared to the 25% originated by banks.
Key findings from the CFPB report include:
- Some states apply an affirmative lending, service delivery, and investment obligation to mortgage companies, in addition to deposit-taking institutions. Most state CRAs adopted shortly after the passage of the federal law in 1977 applied only to banks. However, several states, including Massachusetts and New York, later expanded their state law to cover mortgage companies.
- Some states conduct independent examinations of lending-, services-, and investment-related performance, while others review federal performance evaluations in conjunction with additional state-designated factors. In some states, performance evaluations are periodic, while other states review a financial institution’s performance in response to an application for a merger, branch, license, or other activity.
- Enforcement mechanisms include limitations on mergers, acquisitions, branching activities, and licensing, but some states have adopted additional measures. Like the federal CRA, none of the state laws reviewed explicitly provide for the ability to issue civil monetary penalties or structural remedies for failing to meet state reinvestment requirements.
- Some states collect and consider information beyond what is required under the federal CRA to evaluate lending, services, and investment performance in their state. Most states rely on existing data, such as Home Mortgage Disclosure Act data for mortgage lending, or federal CRA data for small businesses or small farms, to complete their evaluations. At least one state, New York, requires additional small business lending data reporting beyond what is required by the federal law.
- State CRAs have been amended from time to time in response to changing markets. Many state laws were initially passed shortly after the enactment of the federal CRA in 1977. Just as the federal law has been revised since its passage, state reinvestment laws have been amended to cover additional types of financial institutions, collect additional data to better understand financial markets, and address other state-specific needs.
The CFPB’s report underscores the significant role states play in regulating financial institutions and ensuring they meet the needs of their communities. As the landscape of financial institutions continues to evolve, these state-level CRAs will undoubtedly continue to adapt to ensure they effectively serve their communities’ needs.
Read the report, State Community Reinvestment Acts: Summary of State Laws.
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