### What is the primary purpose of the Community Reinvestment Act (CRA)? - [x] To encourage financial institutions to provide loans in low-income areas - [ ] To reduce the paperwork involved in loan processing - [ ] To enhance the profitability of financial institutions - [ ] To regulate the interest rates of loans > **Explanation:** The Community Reinvestment Act (CRA) was passed in 1977 to encourage financial institutions and other lenders to provide loans in low and moderate-income areas. The aim is to reduce discriminatory lending practices and ensure equitable access to credit. ### Which year was the Community Reinvestment Act (CRA) enacted? - [ ] 1965 - [ ] 1985 - [ ] 1995 - [x] 1977 > **Explanation:** The Community Reinvestment Act (CRA) was passed into law in 1977. This federal law was created to enhance the financial system's role in providing loans and financial services to underserved communities. ### What practices did the Community Reinvestment Act (CRA) aim to eliminate? - [x] Discriminatory lending practices affecting low-income neighborhoods - [ ] High-credit lending for luxury purchases - [ ] Reduced mortgage insurance for upper-income areas - [ ] Automated home loan approvals > **Explanation:** The CRA was intended to reduce discriminatory practices that affected the ability of low-income neighborhoods to receive funding for home improvements and real estate purchases. ### When do federal agencies review a financial institution’s compliance with the CRA? - [x] When applying for a new branch, acquisition, or merger - [ ] Annually in February - [ ] Only during stockholder meetings - [ ] Never > **Explanation:** Federal agencies routinely examine a financial institution's compliance with the CRA when the institution applies for a new branch, acquisition, or merger. This ensures that the institution is adhering to the law’s requirements to serve low- and moderate-income communities. ### Does the CRA advocate for unsound lending practices? - [ ] Yes, to increase lending in low-income areas - [ ] Yes, but only under government supervision - [x] No, it requires loans to follow stringent guidelines - [ ] No, it only ensures low interest rates > **Explanation:** The CRA does not advocate unsound lending practices. Any loans made must follow stringent guidelines consistent with the financial institution's overall policies. The purpose is to facilitate fair lending practices, not to compromise financial stability. ### On what basis is the CRA intended to be applied? - [ ] On a demographic basis, focusing on high-population areas - [ ] As a uniform policy for all financial institutions - [x] On an individual basis, considering each institution’s unique situation - [ ] None of the above > **Explanation:** The CRA is intended to be applied on an individual basis, taking into account each financial institution's unique situation. This ensures that compliance requirements are practical and feasible for different types of institutions. ### What does the CRA primarily focus on facilitating? - [x] Commercial mortgage lending in low and moderate-income areas - [ ] Personal loan approvals for high-net-worth individuals - [ ] International investments by financial institutions - [ ] Automated processing of loan applications > **Explanation:** The CRA was specifically designed to facilitate commercial mortgage lending in low and moderate-income areas. It aims to increase the availability of loans in these underserved communities. ### Who benefits directly from the CRA’s implementation? - [x] Low and moderate-income neighborhoods - [ ] High-income individuals - [ ] International investors - [ ] Credit card holders > **Explanation:** The primary beneficiaries of the CRA are low and moderate-income neighborhoods, which gain increased access to loans and financial services previously hindered by discriminatory lending practices. ### What must a financial institution demonstrate to comply with the CRA? - [ ] Minimum profit margins - [ ] Reduced operating costs - [x] Commitment to servicing low and moderate-income communities - [ ] High interest rates > **Explanation:** To comply with the CRA, financial institutions must demonstrate a commitment to servicing the credit needs of low and moderate-income communities, without engaging in unsound lending practices. ### What examination scrutinizes banks for CRA compliance during mergers? - [x] CRA examination - [ ] Financial audit - [ ] Governance review - [ ] SEC filing > **Explanation:** A CRA examination scrutinizes banks for compliance with the act when they seek to merge, open new branches, or undergo similar activities. The examination ensures they are fulfilling their obligations to serve low and moderate-income communities adequately.