Table 1.3 lists the CRA regulation’s technical requirements. Assessing compliance with the technical requirements of CRA is relatively straightforward. To identify the major problems in implementing CRA, determine to what extent the regulatory reforms would address these problems, and identify challenges the regulators would face in ensuring the success of the reforms, we reviewed in detail compliance examinations at 40 banks and thrifts located in 4 regions, including the Northeast, Midwest, West, and South Central parts of the United States. To identify the initiatives that had been taken to overcome lending barriers and enhance community lending opportunities, (1) we judgmentally selected, on the basis of availability, and interviewed over 20 community group representatives; (2) held a roundtable discussion involving representatives from the Association of Community Organizations for Reform Now, the Center for Community Change, and the Consumer Federation of America; and (3) attended several workshops and conferences sponsored by a variety of industry and community groups, in addition to the regulators covering CRA compliance. These problems included too little reliance on lending results and too much reliance on documentation of efforts and processes, leading to an excessive paperwork burden; inconsistent CRA examinations by regulators resulting in uncertainty about how CRA performance is to be rated; examinations based on inadequate information that may not reflect a complete and accurate measure of institutions’ performance; and dissatisfaction with regulatory enforcement of the act, which largely relies on protests of expansion plans to ensure institutions are responsive to community credit needs. They advocated that the CRA reform should eliminate this burden by focusing examinations on performance or results. In response to the third problem of data usefulness, the final regulations have clarified the information to be used to evaluate performance, but the affected parties disagree about whether the data to be collected under the revised regulations will appropriately reflect lending results or be too burdensome. From our case studies, we identified several areas that are key to implementing the revised CRA regulations. Innovative and Cooperative Initiatives Have Overcome Some Lending Barriers

Various individual and cooperative efforts among institutions, community groups, and others have provided the means to lower credit risk and reduce transaction costs in community lending. In a proposed amendment to CRA, the Community Reinvestment Improvement Act of 1995 (H.R.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the major problems in implementing the Community Reinvestment Act (CRA), focusing on the: (1) extent to which regulatory reforms address these problems; (2) challenges regulators face in ensuring the success of CRA reforms; and (3) initiatives taken to enhance lending opportunities in low-income areas.

What GAO Found

GAO found that: (1) bankers, community groups, and regulatory officials generally agree that there is too much reliance on bank documentation efforts and processes, and that CRA examinations are inconsistent and do not accurately reflect the lending institutions' compliance or performance; (2) revised CRA regulations clarify the data used to assess results against performance-based standards, but the affected parties disagree about whether the data collection requirements provide for meaningful performance assessment or are unduly burdensome; (3) differences in examiner training and experience, vague interpretations of CRA standards, and inadequate information and time for implementing CRA performance ratings challenge regulators as they implement CRA regulations; (4) bankers, regulators, and community groups are taking part in a variety of individual and cooperative initiatives to improve community lending and reduce related burdens; (5) barriers to community lending and investment include the higher costs and risks associated with community lending and the underwriting requirements of major participants in secondary mortgage markets; and (6) Congress has considered proposals to amend CRA that would reduce the compliance burden and exempt small institutions from CRA requirements.