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Banks, banking regulators, and community organizations have spent nearly thirty years interpreting and re-interpreting the simple but ambiguous mandate of the Community Reinvestment Act (CRA). The statute imposes an affirmative duty requiring "regulated financial institutions to have continuing... obligations to help meet the credit needs of the local communities in which they are chartered." The CRA was met with much resistance and lax enforcement for almost a decade. Active protest from community groups, a more defined CRA exam, and innovative, profitable lending strategies, have resulted in a dramatic increase in community reinvestment dollar commitments and in loans to low- and moderate-income (LMI) and minority households.

Banks have accepted reinvestment as a means of meeting the convenience and credit needs of communities and preventing urban deterioration. Yet, implementation and enforcement of the CRA remain problematic. The increase in lending has created another trouble - less vigorous and less qualitative enforcement. In an era of potentially lessened accountability due to almost laissez-faire enforcement, the CRA can benefit from increased use of regulatory enforcement powers and from more standardized performance reports.

The CRA is designed to make lending institutions more accountable to the communities they affect. By definition, accountability requires banks to have some input from constituent communities. Measuring the CRA's efficacy according to outcome - that is, the real improvement of physical infrastructures, maintenance of social and economic stability, and the actual influx of credit and investment capital into communities - is desirable.

The dilemma presented when balancing community participation and inclusiveness while preserving as much autonomy as possible for financial institutions is the subject of this article. Part I discusses the CRA's explicit and implicit objectives. Part II discusses the CRA's evaluative tools: the traditional three-part test and the strategic CRA plan. The three-part test measures a bank's actual performance in service, investment, and lending. As an optional way to comply with the CRA, the strategic CRA plan envisions that lenders will seek community input in setting five-year CRA objectives. The strategic plan brings to the forefront the conflict and pressure that banks experience when community groups organize to halt an institution's merger or expansion plans based on past CRA performance. Part III discusses the potential pitfalls that can be produced by the CRA's obligations. Such obligations, if not carefully crafted, could limit the flow of capital into communities even from banks that are willing to reinvest. Efforts to increase capital must be paired with sensitivity to a community's redevelopment concerns. Vocal communities that are able to determine their sustainable economic need must have the opportunity to participate meaningfully in the funding process. The conflict between allowing communities to participate in shaping the bank's funding commitments and requiring a bank to pledge its financial support in advance is discussed in Part III. Part IV discusses the definition and role of community participation and outlines various ways that communities can be better included in a bank's reinvestment process. The section concludes with a suggestion of factors to use in evaluating the level of community participation and inclusiveness. Part V discusses the importance of the strategic plan option to community participation.



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