There are many culprits for the virtual meltdown of ourfinancial system. But the Community Reinvestment Act is not one ofthem. The denunciation of CRA has, to our surprise and dismay, beencirculated in certain media, and even within the credit unionmovement. For example, in a recent posting to the communitydevelopment banking electronic list, which reaches thousands ofpeople in the field, Al Menard categorically declared that “Clearlythe culprit and originating force in [the financial meltdown] wasthe CRA.”

Notwithstanding the credentials Menard cites–Ph.D. in economics,Certified Credit Union Executive–his arguments do not stand up toscrutiny. It is important to refute his erroneous assertion becauseit threatens to lead people down a road that is bad for theAmerican people–and bad for credit unions.

The Community Reinvestment Act of 1977 was an extraordinarilysimple piece of legislation, simply directing banks to serve theirentire communities, including low- and moderate-income segments.There are no criminal or even civil penalties for failing to liveup to CRA. The “stick” of CRA is purely economic: the possibledenial of bank applications to expand, add or close branches ormerge. CRA does not direct a bank to make any particular loan or toabandon prudent lending standards. What some bankers object to, andwhat some credit union people fear (to an exaggerated degree, Ibelieve) is the paperwork and compliance burden of CRA.

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