The Community Reinvestment Act: Questionable Premises and Perverse Incentives

Abstract:     
In this paper we will argue that the CRA as it is currently understood and enforced is no longer an appropriate tool for dealing with discrimination in the lending market and the lack of access to credit in neighborhoods dominated by minorities and people of modest, or minimal means. The statute is based on premises that are questionable in today's lending market, and thus it is not clear that the social benefits provided by the statute are significant. Further, enforcement of the statute generates certain perverse incentives that are costly to society. We emphasize the costly incentive effects in this paper. While the goals of the CRA remain desirable, the current enforcement framework should be reformed.

Note: This is a description of the paper and is not the actual abstract.

JEL Classification: G21, G28

Accepted Paper Series