Community Reinvestment Act has improved loan accessibility in underprivileged areas, but further gains are needed

Timothy Bates & Alicia Robb, "Has the Community Reinvestment Act increased loan availability among small businesses  operating in minority neighbourhoods?", Urban Studies 52 (2015): 9

The take-away: This study evaluates the success of the CRA at increasing the accessibility of loans to businesses in minority neighborhoods, as well as to minority-owned businesses elsewhere. Its findings are encouraging to the extent that they demonstrate “no evidence of minority-neighborhood redlining regarding loan-application evaluation.” However, minority borrowers were found more likely than whites to be discouraged from seeking loans, and there is evidence to suggest that minority-owned businesses located in predominantly white areas receive discriminatory treatment in the loan application process. 

Abstract: The 1977 Community Reinvestment Act (CRA) established a bold agenda requiring financial institutions in the USA to serve the credit needs of low- and moderate-income  areas, including traditionally excluded minority residential areas. Initially opposed by both  bankers and the federal regulatory authorities responsible for enforcement, the CRA has  been contentious for decades. This study explores CRA impacts by investigating whether  small businesses located in minority neighbourhoods have the same degree of bank-loan  access as equally creditworthy Mirms located in other environs. We analysed both the unmet credit needs of small firms and the outcomes of their loan applications. We found that equality in loan access has been attained in some respects, indicating the CRA has had  positive effects on loan availability. Inequality nonetheless persists. Regarding unmet credit  needs, firms are penalised if their owners are African American, Latino or Asian American.  Since roughly half of owners in minority communities are minorities, our challenge was to  disentangle the effects on loan access of small-business geographic location versus owner  race. Causal factors underlying our findings were investigated. Did bank regulators take the  initiative in lessening traditional discriminatory lending practices? Alternatively, were  activist community groups responsible? While the agenda advocated by activist groups  coincides closely with actual gains, the overlapping but differing stated objectives of  regulators did not.   

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