What is the Community Reinvestment Act’s Impact on Auto Finance?

At Bay Motor Finance, we feel it is essential to keep our clients informed of lending policies in the news, including the latest on the Community Reinvestment Act. Something that may affect our dealership partners and loyal customers. 

What is the Community Reinvestment Act (CRA)?

The CRA was passed in 1977. For those wondering what the primary purpose of the Community Reinvestment Act was, it was passed to encourage fair lending to low- and middle-income individuals (LMI). In May of 2022, the Federal Reserve, FDIC, and OCC joined together, proposing it was time for a revamp. Times, and banking, have changed dramatically since the seventies. Today’s realities include smartphones where you can request loans and manage your money at the touch of a button. Protecting consumers and updating laws is important, yet so is having fair access to vehicle finance. 

The act targets “redlining,” which is the systematic denial of financial services to the LMI population. Although we hear this term more often regarding home mortgages, lending is lending and can affect those who need loans for other reasons too. 

What are the Experts Saying?

Since the CRA’s inception, people have had opinions. Critics claim that it has limited lenders without actually providing the equity it promises. Those who favor it say it ensures all have an opportunity to reach for the American dream of success and independence. It has been considered a way to reduce economic inequality, but others see it as a catalyst for gentrification.

Some scholars and banks say the CRA requires banks to engage in risky behavior. There was a period when the OCC allowed banks to qualify for the CRA by investing in projects that provided jobs and bettered communities, like bridge- and road-building projects. Those allowances were rescinded in 2021 before they even took effect. 

What Does This Mean for Auto Finance? 

Those that regulate the loan industry are considering adding these requirements to the world of auto finance. This may slash the auto lending competition, forcing banks and smaller lenders to cut access to those who need loans the most: those who require vehicle finance with bad credit. Access to auto loans means reliable transportation. A dependable vehicle means steady employment, leading to financial health and independence. Isn’t that something we should all want for our friends and neighbors?

Suppose quantitative benchmarking is implemented in the final ruling, and banks must lend under the CRA depending upon their portfolio’s percentage. In that case, banks may reduce the number of auto loans they approve or leave the market entirely. Bay Country Finance will continue to be there for auto dealers and their customers. Offering flexible financing for cars, trucks, and motorcycles allows us to put your clients in the driver’s seat of their vehicle and of their destiny. And that’s a feeling like no other.

At Bay Motor Finance, we provide vehicle financing within the Maryland and Delaware corridors to franchises and independent vehicle dealers who help clients with near-prime and sub-prime credit. Work with the team who understands what simplifying automobile financing is all about. Get in touch, and let us help you get your customers rolling.