Ch. 9
Many communities face a variety of financial capital issues. While most communities have
many financial assets, these assets are not reinvested in the community.
Predatory lending refers to loans that have high interest rates, abusive conditions, fraudulent
behavior, or are targeted to homeowners who are poor.
The credit system is a key intermediary between savers and borrowers. It has a major impact
on the development within the community.
(CRA) statements, data from the Housing and Mortgage Disclosure Act (HMDA), and Uniform
Bank Performance Reports. HMDA data are collected from depository institutions in
metropolitan areas. The data include information on lending activities by race, ethnicity,
gender, and by census tract. CRA involves an assessment of how well the lending institution is
meeting the needs of the community. It looks at the type of credit offered, opening and closing
of branches, discrimination by race, ethnicity and gender, as well as general contribution to
women receiving welfare support. These projects face some common obstacles: working out of
the home is often prohibited in some communities; licensing requirements can be very
expensive; if they make too much money they may risk losing welfare support; the programs
are very small and don’t reach many businesses; and they ultimately rely on government for
financial support.
In addition to CDFIs, many local governments are using incentives to promote development.
One of the most popular is Tax Incremental Financing (TIF). These programs keep taxes at the
same level for a period even while property values increase. Tax-exempt industrial bonds
provide low-interest loans to businesses. Many of these programs are criticized because they
lead to a loss in government revenue and may not be necessary to support businesses.
Discussion Questions
Ch. 9
1. What have been the impacts of changes in the retail banking industry for communities?
2. What are the potential and limits of community-development credit financial institutions?