GRE Question of the Day (July 3)

Verbal

In 1977, the Community Reinvestment Act (CRA) was passed for the purpose of reducing discriminatory credit practices in low-income neighborhoods. The act required Federal financing supervisory agencies to use their authority to encourage lending institutions to meet the credit needs of all borrowers in their communities. The CRA had little impact until 1993, when the Department of Housing and Urban Development (HUD) initiated legal proceedings against lenders who declined too many applications from minority borrowers. Some argue that, while providing equal access to credit is an important aim, pressure on lenders from HUD led to practices that later caused those same lenders to be assailed as “predatory.” In Housing Boom and Bust, economist Thomas Sowell wrote that the CRA, far from being as benign as it appeared, was based on a flawed assumption: that government officials were qualified to tell banks how to lend the money entrusted to them by depositors and investors.

Consider each of the answer choices separately and indicate all that apply.

1. It can be inferred from the passage that the CRA was perceived by some as seemingly innocuous
2. HUD had the ability to affect banking practices
3. Thomas Sowell had asserted that a certain level of expertise is required to direct banks’ lending activities

Question Discussion & Explanation

Correct Answer - 1,2, and 3 - (click and drag your mouse to see the answer)

Consider each of the answer choices separately and indicate all that apply.

Which of the following can be inferred about discriminatory credit practices?

1. They are more common in middle-income neighborhoods than in high-income neighborhoods.
2. Legislators who voted for the CRA did so because they were opposed to such practices.
3. Critics allege that attempts to combat such practices can have unintended consequences.

Correct Answer -  3 - (click and drag your mouse to see the answer)