The Consumer Financial Protection Bureau (CFPB) has published a new analysis on state Community Reinvestment Act (CRA) laws, State Community Reinvestment Acts: Summary of State Laws, highlighting how states ensure financial institutions' lending, services, and investment activities meet the credit needs of their communities.
The CFPB’s report examined the laws of seven states (Connecticut, Illinois, Massachusetts, New York, Rhode Island, Washington, West Virginia) and the District of Columbia, and found that many of those states adopted laws similar to the federal Community Reinvestment Act in decades following the 1977 passage of the landmark federal anti-redlining law.
“The financial market has changed considerably since the passage of the Community Reinvestment Act, and nonbanks are now capturing a large share of the mortgage market,” said CFPB Director Rohit Chopra. “States have responded by creating reinvestment obligations for mortgage companies and have tailored state reinvestment requirements to meet the needs of their local communities.”
While the federal Community Reinvestment Act law applies strictly to banks, state reinvestment laws can apply to a wide range of financial institutions, including nonbank mortgage companies. Banks now originate and hold a much smaller share of outstanding mortgage debt than they did when the legislation was originally enacted. In 1977, banks held 74% of outstanding mortgage debt. By 2007, this share had declined to just 28%. As of 2021, nonbank mortgage companies originated 64% of conventional home purchase mortgage loans, compared to the 25% originated by banks.
Key findings of State Community Reinvestment Acts: Summary of State Laws include:
- Some states conduct independent examinations of lending-, services-, and investment-related performance, while other states review federal CRA 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 solely in response to an application for a merger, branch, license, or other activity.
- 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 CRA in 1977 applied only to banks. Several states, including Massachusetts and New York, later expanded their CRAs to cover mortgage companies. Illinois included mortgage companies when it passed its state CRA in 2021. Additionally, some states apply CRA obligations to credit unions.
- 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 (HMDA) 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 CRA. Additionally, some states have the authority to collect data from institutions that are not required to report federal mortgage, small business, small farm, or other data.
- The most common enforcement mechanisms include limitations on mergers, acquisitions, branching activities, and licensing, but some states have adopted additional measures. For example, a financial institution’s CRA performance rating may be a factor in the ability to conduct certain types of activities, such as serving as a depository for public monies. Some states permit less frequent exams after an institution receives a higher performance rating or require corrective action for a lower performance rating. None of the state CRAs reviewed explicitly provide for the ability to issue civil monetary penalties or structural remedies for failing to meet state CRA requirements.
- State CRAs have been amended from time to time in response to changing markets. Many state CRAs were initially passed shortly after the enactment of the federal CRA in 1977. Just as the federal CRA has been revised since its passage, state CRAs have been amended to cover additional types of financial institutions, collect additional data to better understand financial markets, and address other state-specific needs.
Click here to read the CFPB's full report, State Community Reinvestment Acts: Summary of State Laws.