Document Type
Article
Publication Date
1996
Publication Information
85 Geo. L.J. 237 (1996-1997)
Abstract
Although it has been settled law for almost two decades, there has been a heightened interest in the Community Reinvestment Act (CRA) over the last several years. One factor driving this interest is the continuing economic decline of the inner cities and the consequent widening of the wealth gap between cities and surrounding suburbs in many areas of the country. A second factor is the consolidation of the banking industry, which has encouraged expansion-oriented banks to improve their CRA ratings to gain the approval of regulators. A recent effort to enhance enforcement of the statute, in part the result of information made available under recent legislation, is a third factor. A fourth factor is the current wave of deregulatory talk in Washington, which has generated counterproposals to weaken the statute.
We conclude that the case against the CRA, if based on economic theory, is far from airtight. There are plausible discriminatory processes or mechanisms that might have generated the credit allocation pattern that motivated the CRA. Although we find the empirical evidence on lending discrimination to be inconclusive, most of what is available suggests that minorities are discriminated against when they seek residential loans. However, we also conclude that the classical animus-based theory embodied in civil rights laws is unlikely to be an important factor. This suggests that care must be taken in characterizing the more likely processes as discriminatory.
The article is organized as follows: Part I presents a general overview of the CRA. Part II discusses the economic theory of discrimination and applies the theory to the lending market. In this Part, we also discuss the plausibility of certain theories of discrimination. Part III reviews the econometric evidence on lending discrimination. In this Part, we discuss some of the general problems that make interpretation of empirical evidence based on regression analysis difficult. In Part IV we reconsider the goals of the CRA in light of the economic theory and evidence on lending discrimination before concluding.
Recommended Citation
Vincent D. Rougeau & Keith N. Hylton,
Lending Discsrimination: Economic Theory, Econometric Evidence, and the Community Reinvestment Act,
85 Geo. L.J. 237 (1996-1997).
Available at:
https://scholarship.law.nd.edu/law_faculty_scholarship/874
Comments
Reprinted with permission of Georgetown Law Journal.