and how to look at lending statistics in order to get the real story
The Community Reinvestment Act, or the CRA, was enacted in 1977 as a response to redlining, to ensure that banking institutions were lending equitably to underserved members of their communities. The act essentially requires certain benchmarks to be met in certain areas of lending and in certain neighborhoods, areas which have been neglected by traditional banking.
There has been a lot of criticism of the CRA, mostly that it’s unneeded regulation and that banks should only look at how “safe” a loan is rather than accounting also for personal circumstances of the individual applying. The problem with this criticism is that many people don’t like to think about the long history of discrimination in banking, not only preventing Black Americans from accruing wealth but also neglecting other POC and even white Americans with a lower income level. We consider the CRA to be a vital bit of legislation because it provides some very reasonable lending criteria to ensure all banks are meeting the credit needs of the communities they work in.
However, one thing that the CRA does make confusing is the involvement of mega banks in community development lending. Because all banking institutions are required to devote a certain percentage of their lending to low- and moderate-income households, mega banks will set aside this money for community development, and publicize this extensively, to make that amount seem much bigger than it is. You’ll notice whenever these kinds of institutions talk about the lending they do in community development, they talk about exactly how many millions or billions of their assets have been devoted to it. However, when thinking about the total assets of these institutions, even billions are only drops in the bucket; a recent press release from Bank of America brags that the company has allotted $4.7 billion in the last year to lending solutions which promote community development. This seems like an incredible amount but considering that Bank of America holds $2.3 trillion in assets, this means that only 0.2% of their assets are going to community development efforts.
It’s important to keep this in mind when looking for Better Banking Options, as mega banks will try to make it seem like they’re more effective than they are. Make sure you’re looking at lending portfolios in terms of percentages of assets or deposits rather than dollar amounts, as this indicates the percentage of YOUR deposit which will be effectively developing your community. Ultimately, you goal should be to make the most impact on your community with your deposit, which any banking institution we’ve recommended on this site so far will do much more effectively than any mega bank. However, if none of the Better Banking Options we’ve recommended thus far work for your needs, we’d recommend checking out our search engine, which will list all of the banking options in your area based on our metrics. It's never been easier to get started and make your deposit much more effective in your community that it would be at a mega bank.