Community, Public Policy

Should we have a Community Reinvestment Act in the UK? Gordon Brown toyed with the idea in opposition, but dropped it as likely to worry business in the run up to the election. The lessons from the USA are mixed. On the positive side, it has had the effect of forcing banks to think about the services they offer the 'bottom end' of the market. The best ones then see profitable market opportunities, with the CRA portfolio often being ten or fifteen times as large as the community contribution programme and even more effective.

The danger of regulation is that people follow the letter of the law, not the spirit. The rules end up driving the process, not the needs of the community nor the business. So the better strategy is two fold: first, free up the regulation on the not-for-profit and community competition like credit unions, so banks get a run for their money; second, require all banks under the Code of Practice to report fully each year on what they do for low income customers. That will create the right climate and allow those already taking action, for example keeping open a marginal inner city branch, to get some credit.

Meanwhile  community affairs managers (and the directors of new building society foundations) should seriously consider putting some of their budgets into community loan funds, as risk capital not needing a full commercial return. At worst, the money is spent once as with a donation. At best, being repaid with interest, its effect is multiplied.

Corporate Citizenship Briefing, issue no: 37 - December, 1997