CRA stands for the Community Reinvestment Act. It requires that financial institutions commit a portion of their resources to underserved communities. Basically, financial institutions open branches, give loans, donate money, in communities that they normally wouldn’t, or they get a big fat fine (and plenty mess up still). It was designed to fight inequality in banking. But it doesn’t go far enough. Institutions track and provide outputs rather than outcomes. They just have to prove that they have opened accounts, provided education, giving loans, etc. in these communities. They don’t necessarily have to prove that the communities are better off because of their work.
CRA is a requirement, by law. CSR (Corporate Social Responsibility), or philanthropy, isn’t. Companies don’t have any legal requirement to help solve social issues. But they do it because it has so many benefits (See blog post: Your Why). CRA is in essence, the same thing as CSR but legally required, and I think that ruins it for financial institutions. We are now seeing how necessary this work is for industries to thrive, and the same applies for financial institutions, but they still operate like they are simply checking a box. Because they are. If banks start seeing their CRA the way other companies see their CSR, they would benefit.
When financial institutions simply check the box by opening a bare bones branch in an underserved neighborhood, throw money at programs that may or may not work, and put on informational events that don’t actually make impact, they are spinning their wheels. However, financial institutions have incredible power, and if they used that power to invest, I mean TRULY invest, in community, the direct benefits would be astronomical. If communities have more buying power, more income, better financial education, and access to tools that allow them to put that into action, they can buy houses and cars, keep money in the bank, invest. And financial institutions make money off this. There are a few banks who do this pretty well, like Regions Bank, but most don’t, and I think we can change that.
I am asking financial institutions to seriously evaluate the CRA activities they participate in for outcomes. Ask, are communities better off because of our work? Are we meeting a real community need? Are there gaps missing in our work we could easily fill? If you find your CRA program falling short, let’s work together to create real community impact.
