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Fair lending laws and the CRA: Complementary tools for increasing equitable access to credit

The fair lending laws and the Community Reinvestment Act view lending through two different lenses: one focused on protected classes and one focused on income level. Yet despite the distinction, the laws can work in concert to promote more equal access to credit.

March 8, 2018


Ben Horowitz Senior Policy Analyst, Community Development and Engagement

Article Highlights

  • Laws influence bank behaviors

  • They work to stop discriminatory behavior

  • But fair lending, CRA focuses differ

Fair lending laws and the CRA: Complementary tools for increasing equitable access to credit
Redlined map of Minneapolis, detail
Detail from a 1930s-era redlined map of Minneapolis. Activism against discriminatory lending practices such as redlining helped spur the passage of a group of federal acts that are collectively known as the fair lending laws.Map printed from the Mapping Inequalities Project. Photo by the Federal Reserve Bank of Minneapolis.

Banks can play an important role in their communities by providing credit and financial services that help small businesses get off the ground, families move into new homes, and more. During the Civil Rights era, advocates, researchers, and policymakers demonstrated that many banks denied such opportunities to individuals, specific groups, and entire communities based on borrower demographics, area income, and other characteristics unrelated to creditworthiness.

As a result, the U.S. Congress sought to end unfair discrimination through legislative action. Lawmakers passed several bills collectively known as the fair lending laws and, later, the Community Reinvestment Act (CRA) to create a regulatory framework for making credit more accessible to individuals and communities without unfair biases. The legislative actions created two distinct but complementary toolkits to fulfill Congress’s goals.

The CRA requires banking regulators to assess depository institutions’ records of helping to meet the credit needs of their local communities, including low- and moderate-income areas. The fair lending laws prohibit discrimination in transactions related to residential real estate and credit, and their enforcement entails regular examinations of banks’ compliance.

By providing a brief history and summary of the CRA and fair lending laws and looking at some recent examples of the laws in practice, this article aims to help community members understand how these laws work—sometimes in isolation and sometimes in concert—to influence the behavior of their local financial institutions.

Seattle fair housing protest, 1964
Community members demonstrate against racial discrimination in Seattle's real estate market, 1964. Such protests helped fuel the creation of the fair lending laws.By Seattle Municipal Archives from Seattle, WA (Fair housing protest, 1964, Uploaded by Jmabel) [CC BY 2.0 (], via Wikimedia Commons

The fair lending laws

Origins and workings

Fair lending laws were created to ensure access to credit for people who belong to certain protected classes. Congress included the first of the fair lending laws, the Fair Housing Act, as part of the momentous Civil Rights Act in 1968. The Fair Housing Act initially prohibited discrimination in residential real-estate-related transactions based on race, color, religion, sex, or national origin. Later, the list of protected classes would be expanded to include families with children, people with disabilities, and pregnant women. The law applies to landlords, people selling homes, and mortgage lenders, among others.

Six years later, Congress expanded the scope of anti-discriminatory laws beyond housing by passing the Equal Credit Opportunity Act (ECOA). This act prohibits discrimination by any creditor on the basis of characteristics such as race, color, religion, national origin, sex, or age. Institutions covered by ECOA include banks, credit unions, credit card companies, payday lenders, and even retail stores that may extend credit to their customers.

In 1975, Congress passed the Home Mortgage Disclosure Act (HMDA), which requires certain lenders to provide information to regulators about their mortgage applications and loans.1  Having such information allows regulators to perform detailed analyses that can shine a light on potential discrimination by financial institutions. While it didn’t create any new requirements for banks to change their lending practices, HMDA enabled regulators to more effectively enforce the other fair lending laws, so it, too, is often considered a fair lending law.

The fair lending laws are enforced through multiple channels:

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Have a complaint about your bank? Contact Federal Reserve Consumer Help

Federal Reserve Consumer Help (FRCH) is a centralized operation of the Federal Reserve System that helps consumers file complaints involving banks and other financial institutions. Consumers can file a complaint online at the FRCH website, which also features a library of resources about consumer financial products (many available in both English and Spanish), or by calling the FRCH hotline.


  • Fair lending cases. Private individuals can bring fair lending cases directly to the courts, and may do so with the support of entities like fair housing centers or civil rights organizations. The U.S. Department of Justice (DOJ) may also choose to bring a lender before the courts.
  • Fair lending complaints. Individuals and community groups can also pursue relief through the fair lending laws via a complaint process. Complaints are free to file, and the process for resolving one begins with the federal agency responsible for enforcing the fair lending law related to the complaint. The complaint-resolution path is determined by a number of factors, including decisions made by the filer and the respondent.2 
  • Fair lending examinations of banks and credit unions. Regulators routinely conduct examinations that determine banks’ and credit unions’ compliance with the fair lending laws and several other laws intended to protect consumers. The Federal Reserve, Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), and National Credit Union Administration are all responsible for performing these examinations.

When a regulatory agency identifies an institution that is violating FHA or ECOA, it can take one or more actions, depending on the severity of the violation. These actions include issuing financial penalties, ordering redress to the victims of the illegal activity, and requiring the institution to alter its practices. Violations may also be reported to another agency, such as the DOJ.

The fair lending laws in action

Advocates and legislators fought for the fair lending laws in order to address several practices, including discriminatory loan underwriting, pricing, and marketing; redlining; and steering. A closer look at the latter two practices reveals how fair lending laws can help address cases where consumers are denied services for discriminatory reasons or are unfairly led into more expensive loan products.

When a regulatory agency identifies an institution that is violating FHA or ECOA, it can take one or more actions, depending on the severity of the violation. These actions include issuing financial penalties, ordering redress to the victims of the illegal activity, and requiring the institution to alter its practices.

Redlining. Prior to the enactment of the fair lending laws, banks often relied on redlining when making decisions about the extension of credit. Originally, redlining involved color-coded maps. Lenders drew lines around neighborhoods and ranked their residents’ creditworthiness based on factors like race or country of origin that had no relation to a borrower’s actual ability to pay. Neighborhoods whose residents were unfairly denied credit would typically be outlined or shaded in red. Potentially similar, though perhaps less blatant, practices are still being identified today through HMDA data, the careful attention of regulators, and the grassroots work of fair lending advocates.3 

One of the largest settlements negotiated in the history of the fair lending laws involved behavior that the investigating agency, the U.S. Department of Housing and Urban Development (HUD), described as “disparate treatment redlining.” After analyzing HMDA data gathered from 2008 to 2010, HUD alleged that Associated Bank, N.A., discriminated against mortgage applicants on the basis of race and national origin in several markets spread across Minnesota, Wisconsin, and Illinois. HUD claimed that the bank had “denial disparities” ranging from 20 to 31 percent for African American mortgage applicants and 7 to 16 percent for Hispanic mortgage applicants, relative to white applicants with similar credit characteristics.4  The HUD-initiated complaint also alleged that Associated Bank made fewer loans in majority-minority neighborhoods than in majority-white areas nearby.

Without admitting to any violations, Associated Bank agreed to a $200 million settlement in 2015.5  It requires the bank to invest the settlement amount through increased mortgage lending activity in majority-minority census tracts. The settlement also contains provisions requiring the bank to offer fair housing training for its employees, market to and provide home repair resources in impacted majority-minority neighborhoods, and maintain a second level of review for all loan denials (a practice that the bank had already implemented after the complaint was filed).

Steering. The fair lending laws are also intended to prevent lenders from engaging in steering—the practice of guiding borrowers toward or away from certain loans because of their race or other protected characteristics. For example, the DOJ brought a complaint in 2012 against Wells Fargo Bank, N.A., alleging that the bank’s employees steered approximately 4,000 African American and Hispanic borrowers into higher-priced, subprime home loan products relative to white borrowers with similar creditworthiness. (In the same complaint, the DOJ also alleged that the bank practiced price discrimination against about 30,000 African American and Hispanic borrowers, charging them higher fees and rates because of their race or national origin.) In this case, the fair lending laws weren’t addressing a lack of access to credit—rather, they were addressing an allegedly unfair provision of credit that resulted in higher costs for a protected class of people.

In a settlement to the complaint, the bank denied any wrongdoing, but agreed to provide more than $175 million in relief to customers and communities that were impacted by its subprime lending.6 

The Community Reinvestment Act

In the wake of the fair lending laws’ enactment, advocates and some policymakers were concerned that the laws had not done enough to address systemic barriers to credit in many American neighborhoods. They pressed for further action, and in 1977, Congress passed the CRA, which creates a process for evaluating and rating banks’ records of meeting the credit needs of their communities, including low- and moderate-income (LMI) communities. The CRA evaluation and rating process and the role the CRA plays in influencing banks’ behavior are described below.

A focus on income level

The focus on income level rather than personal characteristics creates a critical distinction between the CRA and the fair lending laws. Race, income, and geography are often highly correlated in many of America’s still-residentially-segregated cities. However, the CRA is race-blind. In other words, while the CRA has important implications for many majority-minority neighborhoods, race does not generally factor into how a bank’s performance is evaluated during a CRA review.

Race, income, and geography are often highly correlated in many of America’s still-residentially-segregated cities. However, the CRA is race-blind. In other words, while the CRA has important implications for many majority-minority neighborhoods, race does not generally factor into how a bank’s performance is evaluated during a CRA review.

The CRA and fair lending laws also cover significantly different entities. While some of the fair lending laws apply to everyone from a landlord to a multinational bank, the CRA hones in on banks. The federal law does not apply to non-bank lenders or credit unions. From here on in this article, “bank” refers to the institutions that are subject to the CRA.

Context, ratings, and tests

The OCC, the Federal Reserve, and the FDIC examine banks for their compliance with the CRA. Certain bank characteristics will determine which of those agencies regulate which banks and how frequent their evaluations are. For example, the Federal Reserve System supervises banks that are FDIC-insured, state-chartered, and members of the Federal Reserve System. Evaluations generally occur every two to five years.

In assessing a bank’s CRA performance, examiners rely on both hard data and qualitative information gathered from the bank and from community sources that have knowledge about the bank’s assessment area, which is the geographic area within which the bank's CRA performance is evaluated. (For a more detailed definition of assessment areas, see the “Defining ‘low- and moderate-income’ and ‘assessment area’” sidebar linked below.) Data sources include HMDA loan data, bank data and records, and demographic statistics from sources like the U.S. Census Bureau. Community input comes mainly from formal complaints and from interviews with examiner-identified community organizations or leaders.

CRA Regulations Binder, detail

Defining "low- and moderate-income" and "assessment area"

These two terms are at the heart of the CRA.Read more

The characteristics of the bank's assessment area plus the information, data, and commentary gathered about the bank determine the performance context for the CRA evaluation. The performance context keeps the CRA from being applied with a “one-size-fits-all” approach. For example, it allows a bank that primarily deals with commercial or agricultural clients to be evaluated differently than a bank that provides a host of services to an urban clientele.

In most cases, the bank’s size—small, intermediate small, or large, based on its assets as of December 31 of both of the prior two calendar years—will determine the tests an examiner uses to determine the bank's rating. The size of a bank also generally determines the criteria of the tests. The federal regulators adjust the asset-size thresholds slightly year to year. The thresholds for 2018 appear in the table below.

Bank Sizes and 2018 Asset Thresholds
Bank Size Category 2018 Asset Thresholds
Small <$313 million
Intermediate Small $313 million up to $1.252 billion
Large ≥$1.252 billion

Regardless of a bank’s size category, it will receive one of four overall ratings for its CRA performance: “Outstanding,” “Satisfactory,” “Needs to Improve,” or “Substantial Noncompliance.” Banks that fall into the two largest size categories will also receive ratings, using roughly the same scale of terms, for their performance under applicable tests. Since 2010, about 98 percent of CRA examinations have resulted in an overall rating of Satisfactory or Outstanding.7 

All banks undergo a lending test. The lending test is the only test applicable to small banks. Examiners look at the lending activity of the bank since its prior CRA exam and assess the bank’s lending to borrowers of different income levels and to businesses and farms of different revenue sizes. The examiners also evaluate the geographic distribution of the bank’s loans. Other criteria evaluated under the lending test vary depending on the size of the bank.

Minneapolis Fed Examiner Presenting at CRA Event
At a November 2017 workshop held by the Federal Reserve Bank of Minneapolis, Senior Examiner Allison Burns trains bankers on the fundamentals of the CRA.Photo by Paula Keller

Community development, CRA, and the Fed

Community development, as defined by the regulations that the federal banking agencies adopted to implement the Community Reinvestment Act (CRA), includes a broad range of activities that serve the credit or other needs of a bank’s assessment area, including low- and moderate-income (LMI) communities. For example, among other areas defined in the regulations, community development activities include some loans supporting affordable housing for LMI individuals, some volunteer activities supporting community services targeted to LMI individuals, investments that promote economic development by financing small businesses or farms, or some loans that revitalize or stabilize LMI census tracts.

The definition of community development set forth in the CRA regulations is quite technical, which is one reason it is important for banks to maintain relationships with their regulators. In between exams, banks should be working with their examiners to ensure that their ideas of community development will meet the CRA’s definition for such activities.

In addition to having examiners with CRA expertise, every Federal Reserve Bank has a team committed to lifting up successful and innovative community development strategies. For example, community development teams across the Federal Reserve System have developed guides on how banks can support activities like workforce development or community health while meeting their CRA obligations.*  Here at the Federal Reserve Bank of Minneapolis, the Community Development Department also conducts original research, organizes information-sharing events, provides technical assistance to community organizations, and aims to build bridges between LMI communities and the banks that should be serving them.

For more information on the community development work being done around the nation, visit, a searchable portal to hundreds of the Federal Reserve System’s community development-related resources.


* For an example of a guide to how the CRA interacts with a policy area like workforce development, see the publication Engaging Workforce Development: A Framework for Meeting CRA Obligations from the Federal Reserve Bank of Dallas.

In addition to undergoing the lending test, intermediate small banks and large banks are assessed on the level and quality of their community development activity. (For more on this, see the “Community development, CRA, and the Fed” sidebar at left.) For intermediate small banks, all community development activities are evaluated under one test. For large banks, community development activities are evaluated under each of three tests: loans, investments, and services. Community development activities that are most responsive to community needs receive greater weight in the analysis of a bank’s CRA performance. Small banks that wish to enhance a Satisfactory rating to an Outstanding rating can opt to have certain activities, including community development activities, considered. Exercising this option would never result in the lowering of a small bank’s rating.

Intermediate small banks and large banks (as well as small banks at their option) are also assessed based on their retail banking services. For intermediate small banks, these activities are considered part of the community development test. For large banks, these activities are part of the service test. For example, regulators might look at the locations of a bank’s branches and ATMs within an assessment area. Examiners also evaluate products offered, such as low-cost checking accounts or free or low-cost government payroll or other check-cashing services. When conducting their analysis, examiners will consider innovative practices in service provision, lending, and investment activity as potentially augmenting an intermediate small bank’s or large bank’s CRA performance.

How the CRA can expand access to credit in LMI communities

Bank regulators cannot fine or sanction a bank for poor performance or a low rating under the CRA. Rather, regulators generate publicly available reports and ratings about a bank’s CRA performance.

Learn more

For further information on the CRA's history and purpose, see our CRA Resources web page. For an at-a-glance summary of bank rating criteria, see A Banker's Quick Reference Guide to CRA, a resource from the Federal Reserve Bank of Dallas.

Even though a low CRA rating—Needs to Improve or Substantial Noncompliance—doesn’t translate into immediate financial penalties for a bank, a poor CRA rating still has consequence. The bad publicity of a low rating can result in a bank losing potential customers. Regulators may also deny or delay a bank’s efforts to merge with or acquire other institutions, or open new branches, based on its CRA record.

Rather than serving as a punitive tool to deter poor behavior, the CRA is intended to improve access to credit and other services for LMI people and within LMI neighborhoods by creating an incentive for banks to develop stronger relationships with their communities.

For example, to enhance its CRA performance, a bank may want to design ways to more easily identify creditworthy LMI borrowers and business owners who may be missed by traditional credit-scoring processes. To learn more about the barriers to credit that affect potential customers in its community, a bank may form relationships with nonprofits, advocacy groups, and cultural institutions serving LMI neighborhoods. The bank may also turn to these same organizations, groups, and institutions to recruit loan applicants and advertise its lending services.

The CRA does not require banks to undertake risky behavior in the name of serving LMI communities. The law states that banks should not abandon safe and sound practices in service of the CRA. As one banker put it at a November 2017 CRA training event hosted by the Minneapolis Fed, “There’s no such thing as a CRA loan—only good loans and bad loans.” By addressing their shortcomings in serving LMI communities, banks seeking to meet or exceed CRA requirements may tap into previously underserved markets that improve their bottom lines.

The law states that banks should not abandon safe and sound practices in service of the CRA. As one banker put it at a November 2017 CRA training event hosted by the Minneapolis Fed, “There’s no such thing as a CRA loan—only good loans and bad loans.”

At a macro level, economists generally find that the contemporary version of the CRA has modestly improved access to credit in LMI neighborhoods without increasing irresponsible behavior by banks. Even still, some critics raise concerns that the act has had negative consequences. (For more on this, see the sidebar “The CRA: Recent criticism and evidence of success” below.)

Tools toward progress

Congress wrote the CRA and fair lending laws in response to discrimination against individuals, specific groups, and communities. While processes for identifying and addressing discrimination differ within the laws’ respective frameworks, that doesn’t mean the acts can’t work together.

For example, even though the CRA itself is generally blind to borrowers’ personal characteristics such as race or national origin, an examiner’s review of a bank’s CRA performance might inform reviews relating to the bank’s compliance with fair lending laws and regulations. When examiners are reviewing data about the bank’s performance context and lending activity, for example, they might come across data or information that raise fair-lending red flags. Also, they might learn about potential fair lending issues when meeting with members of a bank’s local community while conducting the CRA examination.

Evidence of discriminatory credit practices in violation of the Fair Housing Act or ECOA might adversely affect a bank’s CRA rating. For example, for its September 30, 2012, CRA examination, Wells Fargo received Outstanding ratings on its lending and investment tests and a High Satisfactory rating on its service test, which would have resulted in an overall rating of Outstanding. But the bank’s fair lending settlements, among other things, contributed to it receiving the lower overall rating of Needs to Improve.

The laws also share a common feature: they all rely on community engagement. Community members who are concerned about the behavior of banks in their area are invaluable in identifying potential issues that the laws could remedy. The CRA’s encouragement of community engagement can also spur bankers to form important relationships that may lead to reduced risk for unintentional fair lending violations. Relationships with a diverse array of leaders from LMI neighborhoods may provide insight into how banks can better address the needs of their entire community.

The financial industry has changed a lot since the passage of the fair lending laws and the CRA. While lenders might no longer consult a redlined map when deciding whether a customer is creditworthy, inequities still exist in the financial system. After more than 40 years, the CRA and fair lending laws remain two tools that can help regulators and the public make further progress toward a financial system that doesn’t put anyone at an unfair disadvantage.

The CRA: Recent criticism and evidence of success

The CRA creates a continuing and affirmative obligation for banks to meet the credit needs of LMI communities while following safe and sound banking practices. Innovation is encouraged, but not at the expense of the fundamental soundness of a bank’s balance sheet.

Nevertheless, some critics of the CRA claim that the legislation has placed undue pressure on banks to finance irresponsible loans for LMI households that are not actually creditworthy. Others critique the law by saying it does not go far enough. They assert that the CRA has not actually moved the needle on lending disparities.

Economists in the Federal Reserve System have looked into such big questions about the CRA, and their work strongly suggests that the CRA is fulfilling its original purpose without placing a burden of risk on lenders.

Two recent examples:

  • In 2015, Neil Bhutta and Daniel Ringo wrote a summary of the research on the role the CRA played (or didn’t play) in the rapid increase of irresponsible subprime loans that contributed to the Great Recession. They concluded that the CRA is a poor scapegoat for the mortgage crisis. Bhutta and Ringo found that empirical research often failed to establish a connection between the CRA and risky loans. One paper they reviewed even reported that CRA-related loans had lower delinquency rates than non-CRA-related loans. Even the papers critical of the CRA found only small increases in subprime lending that could be attributed to the law. To read Bhutta and Ringo’s summary, visit
  • In 2017, Lei Ding and Leonard Nakamura took a look at what happened in census tracts whose eligibility for CRA coverage changed in 2014. They found that CRA-regulated lenders decreased their activity in tracts where CRA coverage was lost. Non-CRA-regulated lenders increased their activity in such tracts, but they only made up for about half of the decreased lending activity. To read Ding and Nakamura’s working paper, visit


1 Lenders subject to HMDA include banks, savings associations, credit unions, and for-profit mortgage lending institutions. For links to full HMDA reporting criteria, visit

2 For an example of how one agency’s fair lending complaint process works, see HUD’s Fair Housing Complaint Process guide at

3 The Mapping Inequalities project, an effort by the University of Richmond, University of Maryland, and Virginia Tech, has developed an interactive archive of an extensive set of redlining maps, available at The maps were created by the federal Homeowner’s Loan Corporation (HOLC), a New Deal mortgage-refinancing agency that operated from 1933 to 1947. HOLC’s redlining maps had a profound influence on private lenders’ decisions about where to make loans. For more on the consequences of HOLC’s maps, see The Effects of the 1930s HOLC “Redlining Maps,” a 2017 working paper from the Federal Reserve Bank of Chicago, available at

4 According to “Disparate Impact and Mortgage Lending: A Beginner’s Guide” by Alex Gano in the University of Colorado Law Review. Available at

5 For more information on the HUD-Associated Bank settlement, visit

6 For more information on the DOJ-Wells Fargo settlement, visit

7 An online tool that enables users to search for banks’ CRA ratings is available at

Ben Horowitz
Senior Policy Analyst, Community Development and Engagement
Ben Horowitz writes about policies and programs impacting affordable housing, early childhood development, and investments in low- and moderate-income communities.