In 1977, the Community Reinvestment Act (CRA) was passed for the purpo

Question

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.    1 
 Consider each of the answer choices separately and indicate all that apply.

1. It can be inferred from the passage that

A. the CRA was perceived by some as seemingly innocuous
B. HUD had the ability to affect banking practices
C. Thomas Sowell had asserted that a certain level of expertise is required to direct banks’ lending activities

2  
 Consider each of the answer choices separately and indicate all that apply.

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

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

Sajjad1994 · Answer

OE

1. It can be inferred from the passage that

Sowell wrote that the CRA was  “far from being as benign as it appeared.”  Thus, the CRA  “appeared”  benign, or  “innocuous,”  at least to some. The passage states that HUD exerted pressure on lenders, which led to practices that later caused those same lenders to be assailed as  “predatory.”  Thus, HUD had the ability to affect banking practices. Finally, Sowell argued that the idea  “that government officials were qualified to tell banks how to lend”  was a  “flawed assumption.”  If Sowell believed that the government officials were not  “qualified”  to advise the banks, it follows that some minimum level of expertise is necessary in order to be qualified to do so. 
 
  Answer: A,B,C

Sajjad1994 · Answer

OE

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

The passage states that discriminatory credit practices existed in low-income neighborhoods. Do not assume that there is a linear relationship wherein such practices occur most in low-income neighborhoods, less in middleincome neighborhoods, and least in high-income neighborhoods. Maybe such practices exist only in low-income neighborhoods. The first choice is out of scope. The second choice is also out of scope—you have no way to know what legislators were thinking or feeling when they voted for the CRA. The passage does provide good proof for the third statement—since some argue that  “pressure on lenders from HUD led to practices that later caused those same lenders to be assailed as ‘predatory,’”  you can safely conclude that some critics think that attempts to combat discriminatory credit practices (passing the CRA and enforcing it through HUD) can have unintended consequences—in this case, replacing a lack of lending with predatory lending. 
 
  Answer: C

In 1977, the Community Reinvestment Act (CRA) was passed for the purpo

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards