No one has made a better case for the expansion of the Community Reinvestment Act (CRA) than the Federal Reserve Bank. Recently, the institution’s researchers discovered that of all the high-cost loans that led to the nations economic meltdown, less than 6 percent were made by CRA lenders in their assessment areas. In fact, the bank regulatory agency heads—Federal Reserve Chairman Ben Bernanke, Comptroller of the Currency John Dugan, and U.S. Federal Deposit Insurance Corporation Director Sheila Bair—have repeatedly reinforced the position that CRA had little or nothing to do with the bad loans that destroyed many neighborhoods.

Yet how does one reconcile that fact with the reality that the same low- and moderate-income (LMI) (and often predominately minority) CRA census tracts wound up with disproportionately greater numbers of these toxic loans?

The obvious answer is that the non-CRA regulated institutions targeted these areas. Quite true. But it is also true that CRA-regulated lenders were allowed to ignore and even abandon the LMI census tracts. Since 1989, there has been a systematic closing of bank branches in LMI neighborhoods, despite community groups’ efforts to keep some branches open.

In response, payday lenders, pawnshops, and check cashing services stepped into the void to provide basic banking services. Independent mortgage companies and high-cost mortgage lenders filled the vacuum created when the banks pulled out their mortgage lending business. The products offered were high cost, and sometimes predatory.

But if CRA, a federal law, affirmatively obligated banks to serve these communities, how were they able to close shop and ignore the credit needs of these neighborhoods’ residents? The answer, simply stated, is that the regulatory agencies charged with enforcing CRA failed to do their job.

After objecting to regulators about banks’ abandonment of LMI areas, NCRC was astounded to learn from the Federal Reserve Bank (FRB) that it did not see “bank branching” as covered by CRA because it didnt constitute a credit need. Worse, although Congress empowered the FRB as early as 1994 to deal with toxic and abusive loans by providing the institution with the power to issue regulations against “unfair and deceptive” lenders, the FRB failed to act until July 2008. By that time, predatory lenders had long taken their toll on poorer neighborhoods—and eventually on the national economy.

There was a time when CRA led to tremendous growth. In the decade between 1989 and 1999, banks directed literally trillions of dollars in CRA loans and investments to low-wealth neighborhoods. Cal Bradford, formerly with National People’s Action, and Josh Silver of NCRC examined the written CRA commitments made by banks to community groups and their neighborhoods during this 11-year period, when lenders committed over $5 trillion to LMI areas. Community development corporations, community development financial institutions, and many other groups that had struggled to find grants, loans, and investments for their projects experienced an exponential growth during that time in their ability to provide affordable housing, economic development, and community development loans.

This success was attributable to the growth of community groups organizing around CRA, most notably NCRC, ACORN, National People’s Action (the organization that invented CRA), and the Greenlining Institute. The groups’ efforts were bolstered by President Bill Clinton, Hillary Clinton, and Comptroller Gene Ludwig, head of the national banking system—all of whom pushed for stronger CRA oversight and enforcement. At the same time, foundations like Heron, Mott, Ford, Surdna, Rockefeller, and MacArthur stepped in to fund and empower the groups’ activities.

The lesson? When active community groups are organizing around a CRA agenda that is leveraged by strong, deliberate bank regulatory oversight and enforcement, CRA works.

Two important opportunities that hold great promise for creating a more financially inclusive nation are now being debated in this Congress. The first, a bill to create a Consumer Financial Protection Agency (HR 3126), could increase regulatory oversight and enforcement of CRA and other critically important consumer laws. The second piece of legislation, the CRA Modernization Act of 2009 (HR 1479), strengthens CRA in several important areas. Most notably, it expands the number and type of financial institutions that would have an “affirmative obligation” to issue safe and sound loans to low- and moderate-income people.