COMMUNITY 

REINVESTMENT 

ACT

Options for Treasury

to Consider to 

Encourage Services 

and Small-Dollar 

Loans When 

Reviewing Framework

Accessible Version

Report to Congressional Requesters

February 2018

GAO-18-244

United States Government Accountability Office
United States Gov ernment Accountability Office

Highlights of GAO-18-244, a report to 

congressional requesters

February 2018

COMMUNITY REINVESTMENT ACT

Options for Treasury to Consider to Encourage 

Services and Small-Dollar Loans When Reviewing 

Framework

What GAO Found

Based on GAO analysis of 2014 and 2016 data from the Federal Deposit 

Insurance Corporation (FDIC), National Credit Union Administration, Federal 

Financial Institutions Examination Council, and Census, low- and moderateincome (LMI) communities have at least as many banks and credit unions 

nearby as middle-income communities in rural areas and larger metropolitan 

areas but fewer than in smaller metropolitan areas. However, 2015 FDIC survey 

data suggest lower-income households were more likely to obtain credit or 

conduct financial transactions through an alternative financial services (AFS) 

provider (such as a check casher) and less likely to have a checking or savings 

account with a bank or credit union than their higher-income counterparts.

Federal banking regulators’ procedures for conducting Community Reinvestment 

Act (CRA) evaluations do not require an evaluation of financial institutions’ 

provision of retail banking services or small-dollar, nonmortgage consumer 

lending, or support for community development in LMI areas for every institution. 

Whether the federal banking regulators—the Board of Governors of the Federal 

Reserve System (FRB), FDIC, and Office of the Comptroller of the Currency 

(OCC)—evaluate a financial institution on its provision of these services and 

loans depends on the type of institution, among other factors. For example, while 

large institutions are subject to evaluations of their services, lending, and support 

of community development, smaller institutions are primarily evaluated on their 

lending. Further, small-dollar, nonmortgage consumer lending is typically 

evaluated only if consumer lending is a substantial majority of the lending or a 

major product of the institution, which generally is not the case across all 

institution types. 

Stakeholders GAO contacted identified several options they believe could 

provide additional incentives for financial institutions to provide basic banking 

services and small-dollar, nonmortgage consumer loans in LMI areas. Such 

options include modifications to tests conducted as part of the CRA examination 

process to focus more on the extent to which institutions are offering these 

services and loans, expanding the areas and entities assessed as part of the

examinations, and clarifying guidance about the examination process. However, 

other stakeholders noted that such options may not alleviate institutions’ 

competing concerns about the profitability of these services and loans or 

regulators’ concerns about their safety and soundness. In commenting on these 

options, the federal banking regulators noted they had, among other things, 

issued in 2016 additional guidance on small-dollar loans that would qualify for 

CRA consideration. In June 2017, the Department of the Treasury issued a 

report indicating that statutes of critical importance to the banking sector, such as 

CRA, should be modernized to better target the financial risks consumers face. 

As a result, Treasury is planning a review of how CRA is being implemented, 

though the agency did not have a timeline for completing this review. Given the 

continuing unmet needs of many LMI consumers in obtaining basic banking 

services and small-dollar credit, the options that our work identified could help 

inform Treasury’s review of the CRA framework and potentially encourage 

financial institutions to provide basic banking services and small-dollar, 

nonmortgage loans.

View GAO-18-244. For more information, 

contact Alicia Puente Cackley at (202) 512-

8678 or cackleya@gao.gov. 

Why GAO Did This Study

A 2015 FDIC survey found that 7 

percent of U.S. households were 

unbanked—meaning no one had a 

checking or savings account—and 

about 20 percent were underbanked—

meaning the household had such an 

account but used an AFS provider’s 

products. The goal of CRA is to 

encourage financial institutions to help 

meet the credit needs of the 

communities in which they operate, 

including LMI neighborhoods. FRB, 

FDIC, and OCC periodically evaluate 

financial institutions’ efforts to meet the 

credit needs of their communities. 

GAO was asked to assess financial 

institutions’ provision of basic banking 

services and small-dollar, 

nonmortgage consumer loans in LMI 

communities, including how regulators 

evaluate their performance. GAO 

assessed 2016 data on the availability 

of financial institutions in LMI 

communities; reviewed regulators’ 

evaluation procedures; and analyzed a

generalizable, stratified random 

sample of 219 CRA performance 

evaluations from 2015 to determine 

how provision of these services and 

loans was assessed. GAO also 

solicited input from stakeholders 

(including consumer advocacy groups, 

financial industry members, and 

regulators) through methods including 

interviews, a survey, and panel 

discussions.

What GAO Recommends

GAO recommends that Treasury 

consider the options outlined in this 

report when conducting its planned 

review of the CRA framework. 

Treasury concurred with the 

recommendation.
Page i GAO-18-244 Community Reinvestment Act

Contents

Letter 1

Background 4

Financial Services Providers’ Availability to Lower-Income 

Consumers Varies by Location, and Lower-Income Consumers 

Are More Likely to Use Alternative Providers 10

While Limited for Certain Institutions, Scope of CRA Evaluations 

Was Consistent with Examination Procedures 22

Suggested Options Reflect Need to Balance Serving LMI 

Consumers with Concerns about Profitability and Safety and 

Soundness 35

Conclusions 54

Recommendation for Executive Action 54

Agency Comments 54

Appendix I: Objectives, Scope, and Methodology 56

Appendix II: Analysis of Availability of Financial Products and Services to Low- and Moderate-Income 

Communities 61

Appendix III: Econometric Analysis of Household Income and Use of Financial Products and Services 77

Data 77

Appendix IV: Additional Information on Options That Could Further Encourage Banking Services and SmallDollar Loans 96

Appendix V: Comments from the Department of the Treasury 114

Appendix VI: GAO Contact and Staff Acknowledgments 116

GAO Contact 116

Staff Acknowledgments 116

Appendix VII: Accessible Data 117

Data Tables 117

Agency Comment Letter 120
Tables

Page ii GAO-18-244 Community Reinvestment Act

Table 1: Estimated Differences in Number of Bank and Credit 

Union Branches Nearby Low- and Moderate-Income 

Communities Relative to Middle-Income Communities, by 

Location Type, 2016 (percent) 13

Table 2: Estimated Differences in Use of Banks and Credit Unions 

by Lower-Income Households Relative to Households 

with Annual Income of $75,000 or More, 2015 

(percentage points) 18

Table 3: Estimated Differences in Use of Alternative Financial 

Services Providers by Lower-Income Households Relative 

to Households with Annual Income of $75,000 or More, 

2015 (percentage points) 20

Table 4: Estimated Differences in Saving, Bill-Paying, and 

Consumer Credit Behaviors for Lower-Income 

Households Relative to Households with Annual Income 

of $75,000 or More, 2015 (percentage points) 21

Table 5: Population and Sample of 2015 Community 

Reinvestment Act Performance Evaluations, by 

Examination Type 58

Table 6: Census Tract Income Group Definitions (percent) 61

Table 7: Numbers of Census Tracts and Percentage of Population 

in Census Tracts, by Income and Location Type, 2016 62

Table 8: Characteristics of Census Tracts, by Income and 

Location Type, 2016 63

Table 9: Numbers of Bank and Credit Union Branches Nearby 

Census Tracts with Different Income Levels, by Location 

Type, 2016 66

Table 10: Number of Census Tracts with No Bank and Credit 

Union Branches Nearby, by Income Level and Location 

Type, 2016 67

Table 11: Number of Large Bank Community Reinvestment Act 

Assessment Areas Containing Census Tracts, by Income 

and Location Type, 2015 68

Table 12: Number of Alternative Financial Services 

Establishments per 10,000 People in Counties, by 

Location Type, 2014 68

Table 13: Ratio of Bank and Credit Union Branches Nearby Low, 

Moderate-, and Upper-Income Census Tracts to Branches 

Nearby Similar Middle-Income Tracts, by Location Type, 

201671
Table 14: Ratio of Bank and Credit Union Branches Nearby Low-, 

Moderate-, and Upper-Income Census Tracts to Branches 

Nearby Similar Middle-Income Tracts, by Metropolitan 

Area, 2016 72

Table 15: Ratio of Number of Large Bank Community 

Reinvestment Act Assessment Areas Containing Low-, 

Moderate-, and Upper-Income Census Tracts to Number 

Containing Similar Middle-Income Tracts, 2015 75

Table 16: Changes in Alternative Financial Services 

Establishments in Counties Associated with Changes in 

Population in Low-, Moderate-, and Upper-Income 

Census Tracts, 2014 76

Table 17: Household Responses to Questions Related to Basic 

Banking Services, 2015 (percent) 79

Table 18: Household Responses to Questions Related to SmallDollar, Unsecured Loans, 2015 (percent) 81

Table 19: Characteristics of Households and Heads of 

Households, 2015 83

Table 20: Estimated Differences in Methods for Obtaining Basic 

Banking Services for Lower-Income Households Relative 

to Households with Annual Income of $75,000 or More, 

201586

Table 21: Estimated Differences in Methods for Accessing 

Checking and Savings Accounts for Lower-Income 

Households Relative to Households with Annual Income 

of $75,000 or More, 2015 89

Table 22: Estimated Differences in Reasons for Not Having 

Checking or Savings Accounts for Lower-Income 

Households Relative to Households with Annual Income 

of $75,000 or More, 2015 90

Table 23: Estimated Differences in Savings, Bill Paying, and 

Consumer Credit Behaviors for Lower-Income 

Households Relative to Households with Annual Income 

of $75,000 or More, 2015 92

Accessible Data for Figure 1: Number of Bank Branches, Credit 

Union Branches, and Alternative Financial Services (AFS) 

Establishments Nationwide, 2005 through 2010 117

Accessible Data for Figure 4: Evaluation of Retail Banking 

Services by CRA Examination Type 117

Accessible Data for Figure 5: Evaluation of Small-Dollar, 

Nonmortgage Consumer Loans by CRA Examination 

Type118

Page iii GAO-18-244 Community Reinvestment Act
Accessible Data for Figure 6: Evaluation of Support for 

Community Development by CRA Examination Type 119

Figures

Page iv GAO-18-244 Community Reinvestment Act

Figure 1: Number of Bank Branches, Credit Union Branches, and 

Alternative Financial Services (AFS) Establishments 

Nationwide, 2005 through 2016 10

Figure 2: Numbers of Bank and Credit Union Branches per 10,000 

People by County, 2016 (number of counties) 14

Figure 3: Number of Alternative Financial Services Establishments 

per 10,000 People by County, 2016 (number of counties) 16

Figure 4: Evaluation of Retail Banking Services by CRA 

Examination Type 24

Figure 5: Evaluation of Small-Dollar, Nonmortgage Consumer 

Loans by CRA Examination Type 26

Figure 6: Evaluation of Support for Community Development by 

CRA Examination Type 27
Abbreviations

Page v GAO-18-244 Community Reinvestment Act

AFS alternative financial services 

APR annual percentage rate 

ATM automated teller machine

CDFI community development financial institution

Census Census Bureau 

CFPB Consumer Financial Protection Bureau 

CRA Community Reinvestment Act 

CPS Current Population Survey

FDIC Federal Deposit Insurance Corporation 

FFIEC Federal Financial Institutions Examination Council 

fintech financial technology

FRB Board of Governors of the Federal Reserve System 

LMI low and moderate income 

NAICS North American Industry Classification System

NCUA National Credit Union Administration 

OCC Office of the Comptroller of the Currency 

Q&A Interagency Questions and Answers 

Treasury Department of the Treasury

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Page 1 GAO-18-244 Community Reinvestment Act

441 G St. N.W.

Washington, DC 20548

Letter

February 14, 2018

The Honorable Elizabeth Warren

Ranking Member

Subcommittee on Financial Institutions and Consumer Protection

Committee on Banking, Housing, and Urban Affairs

United States Senate

The Honorable Elijah E. Cummings

Ranking Member

Committee on Oversight and Government Reform

House of Representatives

While the percentage of unbanked U.S. households—those without a 

checking or savings account—had fallen since 2011 (to about 7 percent), 

about 20 percent of U.S. households (or about 51 million adults) 

remained underbanked in 2015.1 These underbanked households had a 

bank account but still relied on alternative financial services (AFS) 

providers for basic banking services like check cashing or small-dollar, 

nonmortgage consumer loans.2 The Community Reinvestment Act (CRA), 

which was enacted in 1977, is intended to encourage financial institutions 

to help meet the credit needs of the communities in which they operate, 

including low- and moderate-income (LMI) neighborhoods, consistent with 

safe and sound banking operations. CRA encourages financial institutions 

to provide a wide variety of options to serve the needs of their

communities, including mortgage, consumer, and business lending; 

community investments; and low-cost services that would benefit LMI 

areas and individuals. CRA’s implementation is overseen by the federal 

banking regulators—the Board of Governors of the Federal Reserve 

System (FRB), Federal Deposit Insurance Corporation (FDIC), and Office 

of the Comptroller of the Currency (OCC).

 

1See Federal Deposit Insurance Corporation, 2015 FDIC National Survey of Unbanked 

and Underbanked Households (Washington, D.C.: Oct. 20, 2016).

2AFS providers include transaction providers such as check cashing outlets and money 

transmitters and credit providers such as payday loan stores, automobile title lenders, and 

paw nshop lenders. AFS providers operate outside of federally insured banks, credit 

unions, and thrifts.
Letter

Some groups have argued that revisions to CRA could further encourage 

institutions to serve the unmet banking service and small-dollar credit 

needs of LMI communities. In June 2017, the Department of the Treasury 

(Treasury) issued a report noting, among other things, the need to 

modernize outdated statutes and regulations, including CRA, to conform 

to the realities of the current financial system.

Page 2 GAO-18-244 Community Reinvestment Act

3 For example, Treasury 

noted the supervisory and regulatory framework for CRA, including the 

examination process and rating system, need to reflect the variety of 

ways banks currently do business and meet the needs of diverse 

consumers and communities.

You asked us to assess financial institutions’ provision of basic banking 

services and small-dollar, nonmortgage consumer loans in LMI 

communities, including CRA’s role in doing so. You also asked us to 

evaluate how financial institutions’ support for community development is 

assessed during the CRA examination process. Specifically, this report 

examines: (1) the availability of financial products and services to LMI 

consumers and their use of such products and services; (2) the extent to 

which CRA examinations evaluate financial institutions’ provision of retail 

banking services, small-dollar, nonmortgage consumer loans, and 

support for community development in LMI communities; and (3) 

stakeholder views on options that could further encourage services and 

loans in LMI communities.4

To address our objectives, we reviewed the CRA statute and related 

regulations and interviewed FRB, FDIC, and OCC officials. To assess the 

extent to which financial products and services are available to LMI 

consumers and their use of such products and services, we used, among 

other things, 2016 data from the Census Bureau (Census), FDIC, and the

National Credit Union Administration (NCUA) to estimate how the 

availability of basic banking services offered by banks, credit unions, and 

AFS providers in LMI communities compares to that in other 

communities. In addition, we analyzed FDIC’s National Survey of 

Unbanked and Underbanked Households data for 2011, 2013, and 2015 

to estimate the relationship between household income and various 

financial behaviors and characteristics of households related to the use 

 

3See U.S. Department of the Treasury, A Financial System That Creates Economic 

Opportunities: Banks and Credit Unions (Washington, D.C.: June 2017).

4Basic banking services are a subset of retail banking services, w hich is the term used in 

the CRA regulations and examination procedures.
Letter

and accessibility of basic banking services and small-dollar loans. We 

reviewed documentation on and conducted testing of the data we used 

and determined they were sufficiently reliable for the purpose of reporting 

on consumers’ access to financial institutions and AFS providers as well 

as on how consumers’ use of financial products and services vary with 

income.

To determine the extent to which CRA examinations evaluate financial 

institutions’ provision of retail banking services; small-dollar, nonmortgage 

consumer loans; and support for community development in LMI 

communities, we reviewed a representative random sample of 219 CRA 

performance evaluations stratified by the examination type—large, 

intermediate small, and small bank examinations. Our sampling frame 

includes all 1,273 CRA evaluations of large, intermediate small, and small 

institutions that were conducted in calendar year 2015 and published by 

July 19, 2016. The final sample included 59 large, 76 intermediate small, 

and 84 small bank examinations. Using data collection instruments 

developed by reviewing CRA examination procedures for the three 

examination types, we analyzed this sample of reports to determine the 

extent to which they included evaluations of financial institutions’

provision of retail banking services; small-dollar, nonmortgage consumer 

loans; and support for community development in LMI communities. We 

also interviewed representatives of five financial institutions with 2015 

CRA performance evaluations that mentioned consumer loans and the 

CRA examiners who conducted these evaluations to determine how 

those loans were evaluated under CRA.

To determine stakeholder views on options that could further encourage 

services and loans in LMI communities, we conducted a literature review 

of scholarly studies, policy briefs, news articles, and other sources. We 

also held a series of interviews with 16 stakeholders—including 

representatives of government agencies, industry associations, think 

tanks, and consumer advocacy organizations—to identify options that 

could encourage financial institutions to provide such services and loans. 

We analyzed and grouped the list of suggested options identified in 

literature and interviews. To obtain information on the relative importance 

of these suggested options, we sent a survey to 66 stakeholders 

(individuals and organizations). We then held a series of discussion 

groups with representatives of the federal banking regulators and others 

who responded to our survey to obtain their views on the suggested 

options. (See app. I for a detailed description of our scope and 

methodology.)

Page 3 GAO-18-244 Community Reinvestment Act
Letter

We conducted this performance audit from August 2015 through February

2018 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

Background

Page 4 GAO-18-244 Community Reinvestment Act

Community Reinvestment Act

Congress passed CRA in 1977 to encourage banking institutions to meet 

the credit needs of the communities in which they operate, including LMI 

neighborhoods, consistent with safe and sound banking operations.5 To 

do so, CRA requires federal banking regulators to conduct examinations 

to regularly assess the records of financial institutions in terms of meeting 

local credit needs and issue performance ratings. CRA regulations use 

data on family income in a census tract relative to family income in the 

surrounding metropolitan area or nonmetropolitan (henceforth, rural) area 

of the state where the tract is located to determine LMI communities. A 

census tract is low income if median family income in the tract is less than 

50 percent of the median family income in the surrounding metropolitan 

area or rural area, and it is moderate income if median family income in 

the tract is at least 50 percent and less than 80 percent of median family 

income in the surrounding metropolitan area or rural area. For example, 

in 2017, median family income in the Baltimore-Columbia-Towson 

metropolitan area was about $91,100. Therefore, moderate-income tracts 

in this metropolitan area were those with median family income of at least 

$45,550 but less than $72,880, while low-income tracts were those with 

median family income less than $45,550.

CRA was amended in 1989 to require public disclosure of portions of 

CRA reports, including ratings, and to require CRA examinations to have 

a four-tiered system of descriptive performance levels (Outstanding, 

Satisfactory, Needs to Improve, or Substantial Noncompliance). In 1995, 

the CRA examination was customized to account for differences in 

 

5Pub. L. No. 95-128, title VIII, 91 Stat.1111,1147 (1977), codified, as amended, at 12 

U.S.C. §§2901-2908.
Letter

institution sizes and business models, with different examination 

procedures defined for small and large institutions. In 2005, the institution 

size definitions were revised to include intermediate small institutions and 

were indexed to the Consumer Price Index.

Page 5 GAO-18-244 Community Reinvestment Act

6

In addition, CRA has evolved 

to include a greater emphasis on consumer and business lending, 

community investments, and low-cost services that would benefit LMI 

areas and individuals.

CRA applies to regulated financial institutions (insured depository 

institutions) such as national banks, savings associations, and statechartered commercial and savings banks, but does not apply to credit 

unions and nonbanks, such as insurance companies, securities 

companies, and others. Therefore, CRA is implemented by the federal 

banking regulators—FRB, FDIC, and OCC.7 The three federal banking 

regulators work together to promote consistency in the implementation of 

the CRA regulations by providing guidance on the interpretation and 

implementation of the CRA regulations through Interagency Questions 

and Answers Regarding Community Reinvestment (CRA Q&A) and 

examination procedures and by facilitating uniform data reporting. In 

addition, the federal banking regulators work through the Federal 

Financial Institutions Examination Council (FFIEC) to periodically publish 

the CRA Q&As and examination procedures and to facilitate the release 

of uniform data reporting to the public.8 The federal banking regulators 

 

6CRA institution size thresholds are indexed to the Consumer Price Index, w hich is 

calculated by the Bureau of Labor Statistics and is the principal measure of trends in 

consumer prices and inflation in the United States. As of January 1, 2018, a “small 

institution” w as defined as having less than $1.252 billion in assets, an “intermediate small 

institution” (a subset of “small institutions”) had at least $313 million but less than $1.252

billion, and a “large institution” had $1.252 billion or more in assets.

7FRB regulates state banks that are members of the Federal Reserve System, statechartered U.S. branches of foreign banks, and foreign branches of U.S. banks. OCC 

regulates national banks, U.S. federal branches of foreign banks, and federally-chartered 

thrift institutions. FDIC regulates state-chartered banks and savings institutions that are 

not members of the Federal Reserve System.

8FFIEC is a formal interagency body that w orks to prescribe uniform principles, standards, 

and report forms for the federal examination of financial institutions and to make 

recommendations to promote uniformity in the supervision of financial institutions. In 

addition to FRB, FDIC, and OCC, FFIEC members include NCUA, w hich provides 

regulation and oversight supervision for credit unions in the U.S., and the Consumer 

Financial Protection Bureau (CFPB), w hich enforces federal consumer financial law s and 

protects consumers in the financial marketplace. Additionally, FFIEC includes a State 

Liaison Committee composed of five representatives of state supervisory agencies. The 

State Liaison Committee Chairman is a voting member of FFIEC.
Letter

conduct periodic examinations to evaluate how banks are fulfilling the 

objectives of CRA in their designated assessment areas and issue 

performance ratings as listed above. Institutions desire a satisfactory or 

better CRA rating, as it is considered when they apply to their regulators 

for new branches, mergers, and acquisitions and submit other 

applications that require regulatory approval. According to FRB officials, 

the public nature of ratings can also provide an incentive for banks to 

achieve a Satisfactory or better rating.

Institutions designate one or more assessment areas for CRA purposes. 

These assessment areas must include the locations of the institution’s 

main office, branches, and deposit-taking automated teller machines 

(ATM), as well as the surrounding geographies where the institution has 

originated or purchased a substantial portion of its loans. To determine an 

institution’s rating, the federal banking regulators apply a selection of 

component tests, depending on institution size. Large institutions are 

subject to the lending test, investment test, and service test. Intermediate 

small institutions are subject to the lending test and the community 

development test. Small institutions are subject to the lending test, and 

may opt to have their qualified investments and services reviewed to 

enhance a “Satisfactory” rating.

Page 6 GAO-18-244 Community Reinvestment Act

9 These CRA tests are described below:

· The lending test evaluates the number, amount, and distribution 

across income and geographic classifications of the institution’s home 

mortgage, small business, small farm, and consumer loans in the 

assessment area.10 Depending on the size of the institution, the 

lending test may also include evaluation of the institution’s community 

 

9Under CRA regulations, an institution may apply to its primary federal banking regulator 

to be designated a limited purpose or wholesale bank. Such institutions are evaluated for 

performance under separate standards. A limited purpose bank is a bank that offers a 

narrow product line (such as credit card or motor vehicle loans) to a regional or broader 

market. A wholesale bank is a bank that does not extend home mortgage, small business, 

small farm, or consumer loans to retail customers. In addition, under CRA an institution 

may apply to its primary federal banking regulator to be evaluated under a strategic plan

instead of the CRA regulation. The plan must address all three CRA performance 

categories (lending, investment, and services), but the institution may tailor its CRA 

objectives to the needs of the community and to its ow n capacities, business strategies, 

and expertise.

10CRA w as enacted, in part, in response to concerns about redlining, or banks’ refusal to 

offer home loans in certain neighborhoods based on the income or racial composition of 

the area. Because home mortgages comprise a substantial majority of many financial 

institutions’ lending portfolios, they are often a key component of CRA review s.
Letter

development loans and any innovative or flexible loan products. This 

test has the greatest effect on a large institution’s overall rating.

Page 7 GAO-18-244 Community Reinvestment Act

11

· The investment test grades the dollar amount, complexity, and 

responsiveness of qualified community development investments that 

benefit the institution’s assessment area(s) or a broader statewide or 

regional area that includes the institution’s assessment area(s). These 

are investments, grants, or deposits that generally serve LMI 

individuals and areas.

· The community development test assesses the institution’s 

community development loans, investments, and services, as 

appropriate. Under CRA, qualifying community development activities 

may be related to: affordable housing for LMI individuals; community 

services targeted to LMI individuals; economic development through 

financing small businesses or small farms; and stabilization or 

revitalization of LMI communities, designated disaster areas, or 

distressed or underserved middle-income communities as designated 

by FRB, FDIC, or OCC.

· The service test examines retail service delivery, such as the 

availability and accessibility of branches, products, and alternative 

delivery systems like ATMs and mobile banking in the assessment 

area and across income levels. The service test also evaluates the 

extent, innovativeness, and responsiveness of the institution’s 

community development services.

When applying these tests, the federal banking regulators consider the 

institution’s performance relative to demographic data; institutional 

capacity and constraints; and lending, investment, and service 

opportunities in the institution’s assessment area, known as the 

performance context.

Basic Banking Services and Small-Dollar Loans

Basic banking services refers to those financial services needed to allow 

the average consumer to engage in necessary day-to-day banking 

activities. These services include deposit taking and simple transaction or 

savings account programs with low fees. While there is no single, 

universal definition of small-dollar loans, the term generally refers to 

 

11For intermediate small institutions, the lending and community development tests are 

w eighted equally. An intermediate small institution must receive a satisfactory rating on 

both tests to receive a satisfactory rating overall.
Letter

unsecured, nonmortgage consumer loans that are less than $2,500. 

These loans may include various fees, interest rates, and terms.

A payday loan is generally defined as a single payment, short-term loan 

based on a personal check held for future deposit or electronic access to 

a personal checking account. Payday loans can be approved within 

minutes, and the typical loan is for $100–$500 and a 14-day term. 

However, payday and similar loans have been criticized for their often 

triple-digit annual percentage rates (APR) and the frequency with which 

cash-constrained borrowers roll over or take out successive loans rather 

than repay the original principal amount in full when due.

Page 8 GAO-18-244 Community Reinvestment Act

12 For example, 

we found in January 2011 that payday loans were generally priced at a 

fixed-dollar fee ranging from $15–$20 per $100 borrowed, which was 

equivalent to an APR of 300–600 percent.13 We noted that if a borrower 

was unable to repay the loan on the due date, the borrower generally 

could pay an additional fee to extend (“roll over”) the loan—for example, 

for another 2 weeks. We also concluded that if borrowers extended a loan 

multiple times or obtained consecutive loans, the payday loan cycle could 

continue for weeks or months, costing the borrower much more than the 

initial amount borrowed. The Pew Charitable Trusts reported in 2012 that 

payday loan borrowers were actually indebted for an average of 5 months 

per year, and that on average, a borrower took out eight loans of $375 

each per year (or rolled the same loan over multiple times) and spent 

$520 on interest.14

Banks and credit unions offer some products that may be seen as 

alternatives to payday loans, such as small-dollar consumer loans and 

overdraft services. FDIC found in a 2011 survey of banks’ efforts to serve 

the unbanked and underbanked that about 43 percent of banks had 

developed a range of products and services specifically for underserved 

 

12See Susanna Montezemolo, Payday Lending Abuses and Predatory Practices (Durham, 

NC: Center for Responsible Lending, September 2013). This chapter w as part of a larger 

report, The State of Lending in America & its Impact on U.S. Households, accessed on 

November 30, 2017, and is available at http://w w w.responsiblelending.org/state-oflending/reports/10-Payday-Loans.pdf.

13GAO, Payday Lending: Federal Law Enforcement Uses a Multilayered Approach to 

Identify Employees in Financial Distress, GAO-11-147 (Washington, D.C.: Jan. 26, 2011).

14The Pew Charitable Trusts, Payday Lending in America: Who Borrows, Where They 

Borrow, and Why (Washington, D.C.: July 2012).
Letter

consumers.

Page 9 GAO-18-244 Community Reinvestment Act

15 The survey also found that 82 percent of all banks reported 

offering unsecured personal loans with no minimum loan amount or a 

minimum loan amount of $2,500 or less.16 Consumers may also use 

overdraft services as a source of short-term credit. According to CFPB, 

overdrafts occur when a debit transaction (payment or withdrawal) 

exceeds the consumer’s account balance.17 For a fee, the bank will cover 

these transactions and collect the funds, including all associated fees, 

from the consumer’s next deposit into the account. However, consumers 

must have an established account with the bank to qualify for this 

product, and high fees can make this a costly form of short-term credit.18

Number of Bank and Credit Union Branches and AFS 

Providers

The number of bank and credit union branches and AFS establishments 

nationwide has decreased overall in recent years (see fig. 1). The number 

of bank branches in the U.S. generally rose steadily from 2005 to 2009, 

but has decreased each year since then, from 98,943 in 2009 to 91,445 in 

2016—about the number of branches in the U.S. in 2005. Similarly, the 

number of credit union branches nationwide has decreased from 22,728 

in 2011 (the earliest year for which data were available) to 21,733 

branches in 2016.19 The number of AFS establishments in the U.S. has 

 

15Federal Deposit Insurance Corporation, 2011 FDIC Survey of Banks’ Efforts to Serve the 

Unbanked and Underbanked (Washington, D.C.: December 2012).

16FDIC conducted a small-dollar loan pilot program from 2007 through 2009 designed to 

illustrate how banks can profitably offer affordable small-dollar loans as an alternative to 

high-cost credit products such as payday loans and fee-based overdraft programs. The 

pilot program resulted in a template for small-dollar loans: low - or no-fee loans of $2,500 

or less, w ith a term of 90 days or more, an APR of 36 percent or less, and a streamlined 

underw riting system enabling banks to issue a loan decision w ithin 24 hours of a loan 

application. See Federal Deposit Insurance Corporation, “A Template for Success: The 

FDIC’s Small-Dollar Loan Pilot Program,” FDIC Quarterly, vol. 4, no. 2 (Washington, D.C.: 

2010).

17Consumer Financial Protection Bureau, CFPB Study of Overdraft Programs: A white 

paper of initial data findings (Washington, D.C.: June 2013).

18Consumer Financial Protection Bureau Regulation E, w hich implements the Electronic 

Fund Transfer Act, requires depository institutions to provide notice and a reasonable 

opportunity for customers to opt in to overdraft protection for ATM and most debit card 

transactions. 15 U.S.C. § 1693 et seq.; Regulation E, 12 C.F.R. part 1005.

19Changes in the numbers of bank and credit union branches can be the result of changes 

in the numbers of banks and credit unions, as well as changes in the numbers of branches 

for each active bank and credit union.
Letter

fluctuated, but decreased overall from 32,243 establishments in 2009 to 

30,396 in 2015 (the most recent year for which data were available).

Figure 1: Number of Bank Branches, Credit Union Branches, and Alternative 

Page 10 GAO-18-244 Community Reinvestment Act

Financial Services (AFS) Establishments Nationwide, 2005 through 2016

Note: Credit union branch data were not available for years prior to 2011.

Financial Services Providers’ Availability to 

Lower-Income Consumers Varies by Location, 

and Lower-Income Consumers Are More Likely 

to Use Alternative Providers

On the basis of our econometric analysis, we found that LMI communities

have at least as many banks, credit unions, and AFS providers nearby as 

middle-income communities in some areas but less in others. In addition, 

our analysis of recent survey data suggests lower-income households 

were more likely to obtain credit or conduct financial transactions through 
Letter

an AFS provider and less likely to have a checking or savings account 

with a bank or credit union than their higher-income counterparts. Further, 

lower-income households were more likely to be unbanked because they 

lacked sufficient funds, credit, or personal identification.

Page 11 GAO-18-244 Community Reinvestment Act
Letter

Availability of Banks, Credit Unions, and AFS Providers to 

Page 12 GAO-18-244 Community Reinvestment Act

LMI Communities Varies by Location

Our econometric analysis of recent FDIC, FFIEC, NCUA, and Census 

data found that LMI census tracts (referred to throughout this report as 

“communities”) generally have at least as many banks and credit unions 

nearby as middle-income communities in rural areas and most 

metropolitan areas, but have fewer nearby in smaller metropolitan 

areas.20 We found that low-income communities in rural areas and in 

metropolitan areas with at least 100,000 people have at least as many 

bank and credit union branches (referred to collectively throughout this 

report as “branches”) within 2 miles as middle-income communities, all 

else being equal, but low-income communities in metropolitan areas of 

less than 100,000 people have fewer branches within 2 miles than 

middle-income communities.21 For example, we estimated that lowincome communities in metropolitan areas with 250,000 to 499,999 

people have about 11 percent more branches within 2 miles than similar 

middle-income communities (see table 1). We also estimated that lowincome communities in metropolitan areas with 500,000 to 999,999 have 

about 22 percent more branches within 2 miles than similar middle-

 

20For this analysis, w e used 2010 and 2016 data from Census and 2016 data from FFIEC, 

FDIC, and NCUA to analyze the availability of financial services providers by counting the 

number of bank and credit union branches within 2, 5, and 10 miles of the central point of 

a census tract, or community. We analyzed census tracts, or communities, based on 

income level w ith an emphasis on LMI communities. The econometric analysis includes 

several control variables, such as tract income; population density and land use category; 

the demographic mix of tract population by age, race/ethnicity, gender, educational 

attainment, and labor force status; and the mix of homes by homeow nership status. Our 

analysis is subject to limitations. For example, the results of our analysis may not 

generalize to other time periods. In addition, our results are indicative of the availability of 

basic banking services for LMI communities on average, but availability for a specific LMI 

community may be different. Similarly, availability of banks may differ from that of credit 

unions. There may be alternative measures of availability other than the numbers of 

branches w ithin a given distance from a census tract, and these measures may produce 

different results. Although w e controlled for several important drivers of differences in the 

number of bank and credit union branches across communities, our w ork does not 

establish causal relationships betw een community income and availability of basic 

banking services. Finally, proximity to providers of banking services is only one type of 

availability, and LMI communities may face other barriers to accessing banking services. 

See appendix II for more details about our analysis and findings. 

21Our analysis indicated similar patterns w hen examining the number of branches at 

distances greater than 2 miles from the center of a community. In general, LMI 

communities in rural areas and metropolitan areas of all sizes had at least as many 

branches w ithin 5 and 10 miles as similar middle-income communities. See appendix II for 

more details about our analysis and findings.
Letter

income communities in the same area, and those in metropolitan areas 

with 1 million people or more have about 31 percent more. However, we 

estimated that low-income communities in rural areas and in metropolitan 

areas with 100,000 to 249,000 people have about the same number of 

branches within 2 miles as middle-income communities, and those in 

metropolitan areas with less than 100,000 people have about 35 percent 

fewer. We found that moderate-income communities in rural areas and 

metropolitan areas of all sizes have at least as many branches within 2 

miles as middle-income communities, all else being equal.

Table 1: Estimated Differences in Number of Bank and Credit Union Branches Nearby Low - and Moderate-Income 

Page 13 GAO-18-244 Community Reinvestment Act

Communities Relative to Middle-Income Communities, by Location Type, 2016 (percent)

Community income Estimated percent difference between the number of bank and credit union branches w ithin 2 miles 

of low- and moderate-income communities and the number within 2 miles of similar 

middle-income communities in 

rural areas metropolitan 

areas w ith

99,999 people 

or fewer

metropolitan 

areas w ith

100,000 to 

249,999 people

metropolitan 

areas w ith

250,000 to 

499,999 people

metropolitan 

areas w ith

500,000 to 

999,999 people

metropolitan 

areas w ith 1 

million people 

or more

Low No significant 

difference

-35 No significant 

difference

+11 +22 +31

Moderate No significant 

difference

No significant 

difference

+7 +10 +10 +10

Source: GAO analysis of data from the Census Bureau, the Federal Deposit Insurance Corporation, the Federal Financial Institutions Examination Council, and the National Credit Union Administration. |

GAO-18-244

Notes: The table shows the estimated average percent difference between the numbers of bank and 

credit union branches within 2 miles of low- and moderate-income communities and the number 

within 2 miles of similar middle-income communities in the same metropolitan area or rural area. 

These averages were estimated using regressions that also controlled for community population 

density and land use; the demographic mix of people in the community by age, race/ethnicity, gender, 

educational attainment, and labor force status; the mix of homes in the community by homeownership 

status; and the metropolitan area or rural area of the state where the community is located. All 

estimates are statistically significant at the 5 percent level or better unless otherwise noted. See 

appendix II for the details of our analysis and table 13 in appendix II for more information about these 

results.

At the same time, our analysis of recent Census data also suggests that 

the number of branches nearby communities of all income levels varies 

across the country. We found that the number of branches per 10,000 

people in a county was generally higher in the Midwest than the number 

in other regions in 2016 (see fig. 2). Most U.S. counties had no more than 

about 9 branches per 10,000 people, and only 32 counties had no 

branches. However, many counties in the Midwest had more than about 9 

branches per 10,000 people, and some had more than 17 branches per 

10,000 people. Thus, while the number of branches nearby LMI 

communities may be similar to or greater than the number of branches 

nearby middle-income communities in the same metropolitan area or rural 
Letter

area of a state, the number of branches nearby LMI communities in 

different parts of the country may be quite different.

Figure 2: Numbers of Bank and Credit Union Branches per 10,000 People by County, 2016 (number of counties)

Page 14 GAO-18-244 Community Reinvestment Act

Our analysis of the availability of AFS providers, such as payday lenders 

and check cashers, to LMI communities found that counties with a higher 

proportion of residents in LMI communities generally do not have more 
Letter

AFS establishments and, in fact, may have fewer in some areas.

Page 15 GAO-18-244 Community Reinvestment Act

22 These 

findings were generally consistent with the results of other studies on the 

topic.23 For example, a 2014 study found that if anything, the numbers of 

certain AFS establishments—specifically, payday loan stores, 

pawnshops, and check cashers—per capita are smaller in counties with 

more people with income below the poverty line, all else being equal.24

At the same time, our analysis of recent Census data found that the 

number of AFS establishments nearby communities of all income levels 

varies across the country. We found that the number of AFS 

establishments per 10,000 people in a county was generally higher in the 

South than the number in other regions in 2016 (see fig. 3). Most U.S. 

counties had no more than about 2 AFS establishments per 10,000 

people, and 1,128 counties had no AFS establishments. However, many 

counties in the South had more than 2 AFS establishments per 10,000 

people, and some had more than 5 AFS establishments per 10,000 

people. Thus, while the number of AFS establishments nearby LMI 

communities may be comparable to the number nearby middle-income 

communities in the same metropolitan area or rural area of a state, the 

number of AFS establishments nearby LMI communities in different parts 

of the country may be quite different.

 

22According to the National Conference of State Legislatures, some states prohibit payday 

lending. How ever, other types of AFS establishments may still operate. In 2014 in states 

that do not prohibit payday lending, there w ere generally few er AFS establishments in 

counties w ith more residents in low -income communities. Specifically, a 1 percentage 

point increase in the share of residents in low -income communities w as associated w ith 

about a 1 percent reduction in the number of AFS establishments in a county, all else 

being equal. In states that do prohibit payday lending, the number of AFS establishments 

in a county w as unrelated to the share of people living in low -income communities. 

Similarly, the number of AFS establishments in a county w as not associated w ith the 

number of residents in moderate-income communities, regardless of w hether a state 

prohibits payday lending.

23We analyzed county-level data on the proportion of a county’s residents w ho live in low -

or moderate-income communities and the number of AFS establishments located in the 

county. We used 2014 county data from Census and FFIEC. This analysis controlled for 

several relevant factors, such as the distribution of county population across different 

groups by race, gender, age, education, and employment status. See appendix II for a 

more in-depth discussion of our analysis and findings.

24R. A. Prager, “Determinants of the Locations of Alternative Financial Service Providers,”

Review of Industrial Organization, vol. 45, no. 1 (2014). 
Letter

Figure 3: Number of Alternative Financial Services Establishments per 10,000 People by County, 2016 (number of counties)

Page 16 GAO-18-244 Community Reinvestment Act
Letter

Lower-Income Households Are Less Likely to Use Banks 

Page 17 GAO-18-244 Community Reinvestment Act

and Credit Unions Than Higher-Income Households

Despite the availability of bank and credit union branches, our 

econometric analysis of 2015 National Survey of Unbanked and 

Underbanked Households data suggests that lower-income households 

were generally less likely to access products and services and conduct 

transactions through banks and credit unions than higher-income 

households.25 We estimated that 7 percent of households were 

unbanked, or did not have a checking or savings account, and lowerincome households were more likely to be unbanked than higher-income 

households.26 For example, we estimated that, in 2015, the share of 

households with income less than $15,000 that had a checking or savings 

account was about 15.1 percentage points lower than the share of similar 

households with income of $75,000 or more that had a checking or 

savings account, and the share of households with income from $15,000 

to $29,999 that had a checking or savings account was about 4.5 

percentage points lower (see table 2). A 2016 study reported similar 

results, finding that lower-income households were less likely to have a 

bank account.27 We also found that households with lower incomes were 

less likely to receive income and pay bills through bank-associated 

methods such as online transfers and bill pay, and they were less likely to 

have direct deposit.28

 

25Federal Deposit Insurance Corporation, 2015 FDIC National Survey of Unbanked and 

Underbanked Households. See appendix III for additional information about this analysis.

26Our analysis controlled for several variables, such as family type, primary language, age, 

education, employment status, citizenship status, and race. Our analysis is subject to 

limitations. For example, our results may not generalize to other time periods. In addition, 

our results are indicative of the experience of households on average, but the experience 

of an individual household may differ. Furthermore, the data do not include variables 

identifying households’ locations at levels of detail more fine than the metropolitan area in 

w hich they live. Thus, w e are not able to account for the characteristics of a household’s 

local community that may influence their decisions, such as the numbers of banks and 

AFS providers nearby.

27R. M. Goodstein and S. L. W. Rhine, “The Effects of Bank and Nonbank Provider 

Locations on Household Use of Financial Transaction Services,” Journal of Banking and 

Finance, vol. 78, no. 5 (2017).

28Our analysis also demonstrated that income is not the only factor that affects consumer 

choices about services and loans; other characteristics, such as homeownership, are 

factors that affect choices about accessing basic banking services and small-dollar, 

unsecured loans. See appendix III for a more in-depth discussion of our analysis and 

findings.
Letter

Table 2: Estimated Differences in Use of Banks and Credit Unions by Lower-Income Households Relative to Households w ith 

Page 18 GAO-18-244 Community Reinvestment Act

Annual Income of $75,000 or More, 2015 (percentage points)

Household annual income Estimated difference between the percentage of lower-income households and the 

percentage of similar households with annual income of $75,000 or more that:

had a checking or savings 

account

typically received income and 

paid bills using methods 

associated with banks in the 

preceding year

used direct deposit in the 

preceding year

Less than $15,000 -15.1 -21.3 -23.2

$15,000 to $29,999 -4.5 -14.3 -14.8

$30,000 to $49,999 No significant difference -8.2 -7.9

$50,000 to $74,999 +1.1 -4.5 -2.9

Source: GAO analysis of data from the Federal Deposit Insurance Corporation. | GAO-18-244

Notes: The table shows the estimated average difference between (1) the percentage of households 

with income in a given lower range using a basic banking service and (2) the percentage of similar 

households in the same metropolitan area or rural area with income of $75,000 or more using that 

service. These differences were estimated using regressions that also control for family type, 

homeownership, and language spoken at home, as well as the age, education, labor force status, 

nativity and citizenship, and race/ethnicity of the head of the household, and the location type and 

metropolitan area or state rural area where the household is located. All estimates are statistically 

significant at the 5 percent level or better unless otherwise noted. See appendix III for the details of 

our analysis and see table 20 in appendix III for more information about these results.

Our analysis of 2015 National Survey of Unbanked and Underbanked 

Households data also suggests that lower-income households can have 

different reasons for being unbanked—not having a checking or savings 

account—than higher-income households.29 Among unbanked 

households, lower-income households were more likely to say that they 

were unbanked because they did not have enough money to keep in an 

account or because they had personal identification, credit, or former 

bank account problems. For example, compared to the share of 

households with income of $75,000 or more citing not having enough 

money to keep in an account as a reason for being unbanked, we 

estimated that the share of households with income between $30,000 and 

$49,999 citing that reason was about 19 percentage points higher, the 

share of households with income between $15,000 and $29,999 citing 

that reason was about 27 percentage points higher, and the share of 

households with income less than $15,000 citing that reason was about 

34 percentage points higher. Households with incomes between $30,000 

 

29We analyzed data from FDIC’s National Survey of Unbanked and Underbanked 

Households to estimate the relationship betw een household income and various financial 

behaviors and characteristics of households related to the use and accessibility of basic 

banking services and small-dollar loans. (For technical details on our household analysis, 

see app. III.)
Letter

and $74,999 were more likely than other households to be unbanked 

because bank hours or locations were inconvenient. Among unbanked 

households, those with lower incomes were just as likely as those with 

higher incomes to cite high or unpredictable bank fees, among other 

reasons, as the reason they were unbanked.

Lower-Income Households Are More Likely to Use AFS 

Page 19 GAO-18-244 Community Reinvestment Act

Providers Than Higher-Income Households

Our analysis of 2015 National Survey of Unbanked and Underbanked 

Households data found that lower-income households were more likely to 

obtain credit or engage in financial transactions through an AFS provider 

than their higher-income counterparts. Overall, we estimated that about 

20 percent of households reported using AFS providers for transactions in 

the past year, and about 8 percent reported using nonbank or AFS 

providers for credit. Households with less than $75,000 in income were 

more likely than those with higher incomes to report using an AFS 

provider in the past 12 months for transactions and for credit. For 

example, we estimated that the share of households with income less 

than $15,000 that used AFS providers for transactions was about 11 

percentage points higher than the share of households with income of 

$75,000 or more that did so, and the share of households with income 

less than $15,000 that used AFS providers for credit was about 4 

percentage points higher (see table 3). Other research has also found 

that lower-income consumers are more likely to use AFS providers. The 

Pew Charitable Trusts reported in 2012 that 12 million people took out 

payday loans each year, and about 5.5 percent of American adults had 

used a payday loan in the past 5 years.30 CFPB reported in 2013 that 84 

percent of payday loan borrowers had a reported annual income of less 

than $40,000; 43 percent of borrowers had a reported income of less than 

$20,000 annually.31

 

30The Pew Charitable Trusts, Payday Lending in America: Who Borrows, Where They 

Borrow, and Why.

31Consumer Financial Protection Bureau, Payday Loans and Deposit Advance Products: 

A White Paper of Initial Data Findings (Washington, D.C.: Apr. 24, 2013). 
Letter

Table 3: Estimated Differences in Use of Alternative Financial Services Providers by Low er-Income Households Relative to 

Page 20 GAO-18-244 Community Reinvestment Act

Households with Annual Income of $75,000 or More, 2015 (percentage points)

Household annual income Estimated difference between the percentage of lower-income households and the 

percentage of similar households with annual income of $75,000 or more that:

used AFS providers for transactions obtained credit from AFS providers

Less than $15,000 +11.0 +3.9

$15,000 to $29,999 +7.4 +3.5

$30,000 to $49,999 +4.4 +3.6

$50,000 to $74,999 +3.0 +1.5

Source: GAO analysis of data from the Federal Deposit Insurance Corporation. | GAO-18-244

Notes: The table shows the estimated average difference between (1) the percentage of households 

with income in a given lower range using alternative fi nancial services providers and (2) the 

percentage of similar households in the same metropolitan area or rural area with income of $75,000 

or more using alternative financial services providers. These differences were estimated using 

regressions that also control for family type, homeownership, and language spoken at home, as well 

as the age, education, labor force status, nativity and citizenship, and race/ethnicity of the head of the 

household, and the location type and metropolitan area or state rural area where the household is 

located. All estimates are statistically significant at the 5 percent level or better unless otherwise 

noted. See appendix III for the details of our analysis and see tables20 and 23 in appendix III for 

more information about these results.

Our analysis suggests that lower-income households may have greater 

demand for small-dollar loans than their higher-income counterparts, but 

are more likely to obtain them from AFS providers. We found that 

households with lower incomes were less likely than similar households 

with higher incomes to have saved for unexpected expenses and more 

likely to have fallen behind on bills (see table 4). However, lower-income 

households were less likely to have had consumer credit from a bank, 

and more likely to report being credit constrained, meaning they were 

unable to obtain credit or discouraged from applying for credit from a 

bank.
Letter

Table 4: Estimated Differences in Saving, Bill-Paying, and Consumer Credit Behaviors for Low er-Income Households Relative 

Page 21 GAO-18-244 Community Reinvestment Act

to Households with Annual Income of $75,000 or More, 2015 (percentage points)

Household annual 

income

Estimated difference between the percentage of low er-income households and the percentage of 

similar households with annual income of $75,000 or more that: 

set aside money for 

unexpected expenses 

or emergencies

fell behind on bills had consumer credit 

from a bank

were consumer credit 

constrained

Less than $15,000 -27.4 +18.5 -5.9 +3.1

$15,000 to $29,999 -19.1 +14.0 -4.5 +3.7

$30,000 to $49,999 -12.0 +8.6 -3.2 +2.0

$50,000 to $74,999 -6.0 +4.9 -2.1 +1.6

Source: GAO analysis of data from the Federal Deposit Insurance Corporation. | GAO-18-244

Notes: The table shows the estimated average difference between (1) the percentage of households 

with income in a given lower range that exhibited a behavior and (2) the percentage of similar 

households in the same metropolitan area or rural area with income of $75,000 or more that exhibited 

the same behavior. These differences were estimated using regressions that also control for family 

type, homeownership, and language spoken at home, as well as the age, education, labor force 

status, nativity and citizenship, and race/ethnicity of the head of the household, and the location type 

and metropolitan area or state rural area where the household is located. All estimates are 

statistically significant at the 5 percent level or better unless otherwise noted. See appendix III for the 

details of our analysis and see table 23 in appendix III for more information about th ese results.
Letter

While Limited for Certain Institutions, Scope of 

Page 22 GAO-18-244 Community Reinvestment Act

CRA Evaluations Was Consistent with 

Examination Procedures

CRA examinations do not always evaluate financial institutions’ provision 

of retail banking services, small-dollar, nonmortgage consumer lending, 

or support for community development in LMI areas because such 

assessments are not required for every institution.32 Our review of a 

representative random sample of 219 CRA public disclosure performance 

evaluations (performance evaluations) for examinations conducted in 

2015 found that evaluations of retail banking services, small-dollar 

nonmortgage consumer lending, and support for community development 

in LMI areas varied across examination types.33 For example, while larger 

institutions are subject to evaluations of their services, lending, and 

support of community development, smaller institutions are primarily 

evaluated on their lending. Further, in line with CRA’s primary focus on 

home mortgage, small business, and small farm loans—loans that tend to 

comprise the bulk of financial institutions’ portfolios—CRA examinations 

typically only evaluate a financial institution’s consumer lending if it is a 

substantial majority of the institution’s lending or a major product line, 

which generally is not the case across all institution types.

 

32As noted previously, basic banking services are a subset of retail banking services, 

w hich is the term used in the CRA regulations. When w e review ed CRA evaluations, w e 

focused on retail banking services because they are the services evaluated as part of the 

CRA examination procedures.

33Our representative random sample of 219 CRA performance evaluations included 

examinations conducted in 2015 using large, intermediate small, and small institution 

examination procedures as the stratification factor on which w e drew the independent 

random sample. In 2015, a small institution w as defined as having less than $1.221 billion 

in assets, an intermediate small institution (a subset of small institutions) had at least $305 

million but less than $1.221 billion in assets, and a large institution had $1.221 billion or 

more in assets. For more details on our sampling methodology, see appendix I.
Letter

Focus of CRA Examinations Varies by Institution Size and 

Page 23 GAO-18-244 Community Reinvestment Act

Business Model

The extent to which a financial institution’s CRA examination includes an 

evaluation of retail banking services, small-dollar, nonmortgage consumer 

loans, and support for community development varies by the institution’s 

size and business model. For example, consumer lending is generally not 

examined at large institutions unless it constitutes a substantial majority 

of a financial institution’s lending.34 Additional information about how 

these services and loans are evaluated for large, intermediate small, and 

small institutions follows.

Retail Banking Services

The CRA Q&As state that a CRA examination is to include an evaluation 

of the financial institution’s provision of retail banking services in LMI 

areas for large institutions and may include such an evaluation for 

intermediate small institutions.35 An evaluation of services is not required 

for small institutions. However, small institutions may request that their 

CRA examination include an evaluation of their services to possibly 

enhance their overall rating from “Satisfactory” to “Outstanding.”

36 See 

figure 4 for a summary of which CRA examination types are to include 

evaluations of retail banking services and the factors considered.

 

34For small and intermediate small institutions, consumer loans may be chosen for review

if these loans are a major product line for the institution.

35Along w ith the CRA examination procedures, the federal banking regulators periodically 

issue interagency Q&As to provide guidance to financial institutions and the public on the 

interpretation and application of the CRA regulations. The interagency Q&As give 

examples of retail banking services that improve access to financial services, or decrease 

costs, for LMI individuals, including low -cost deposit accounts, individual development 

accounts, and free or low -cost government, payroll, or other check cashing services. See 

Interagency Questions and Answers Regarding Community Reinvestment § __.24(a) – 1, 

81 Fed. Reg. 48506, 48542 (July 25, 2016).

36Including an evaluation of a financial institution’s services cannot be used to enhance a 

rating low er than “Satisfactory.”
Letter

Figure 4: Evaluation of Retail Banking Services by CRA Examination Type

Page 24 GAO-18-244 Community Reinvestment Act

a

The service test also covers community development services, as discussed below.

b

Services provided through branches are just one of many factors considered under the community 

development test, as discussed below.

c

The optional review also includes a review of the institution’s qualified investments, which are 

investments and grants that generally serve LMI individuals and areas.

Small-Dollar, Nonmortgage Consumer Loans

Large, intermediate small, and small institutions are subject to the lending 

test, but this test does not typically evaluate small-dollar, nonmortgage 
Letter

consumer loans.

Page 25 GAO-18-244 Community Reinvestment Act

37 The CRA examination procedures do not include an 

evaluation of a financial institution’s provision of consumer loans in LMI 

areas unless (1) consumer loans constitute a substantial majority of the 

financial institution’s lending (large institutions) or are a major product line 

(intermediate small and small institutions); (2) for a large institution, smalldollar, nonmortgage consumer loans are an example of an innovative or 

flexible lending practice; or (3) the institution requests that its consumer 

loans be evaluated.38 Further, even in cases where consumer loans are 

evaluated, small-dollar, nonmortgage consumer loans may not be 

included because the institution may not provide such loans.39 According 

to officials with the federal banking regulators, financial institutions 

typically do not collect and maintain data on small-dollar, nonmortgage 

consumer loans because of the low volume of such loans. See figure 5 

for a summary of which CRA examination types are to include evaluations 

of small-dollar, nonmortgage consumer loans.

 

37The CRA Q&As state that loan programs that provide small, unsecured consumer loans 

in a safe and sound manner (based on the borrow er’s ability to repay) and with 

reasonable terms are an example of a lending activity that is likely to be responsive in 

helping to meet the credit needs of communities and therefore can get consideration 

under the lending test. See Interagency Questions and Answers Regarding Community 

Reinvestment § __.22(a) – 1, 81 Fed. Reg. 48506, 48536 (July 25, 2016). How ever, the 

current CRA examination procedures have not been updated to reflect these 2016 

changes. The federal banking regulators are updating the examination procedures for all 

examination types, but do not have a time frame for completing that process. 

38The federal banking regulators interpret “substantial majority” to be so significant a 

portion of the institution’s lending activity by number and dollar volume of loans that the 

lending test evaluation w ould not meaningfully reflect its lending performance if consumer 

loans w ere excluded. FRB, FDIC, and OCC evaluate the “innovativeness or flexibility” of 

an institution’s lending practices by review ing the overall variety and specific terms and 

conditions of the credit products considered. They also consider the extent to which 

innovative or flexible terms or products augment the success and effectiveness of the 

institution’s loan programs that address the credit needs of LMI geographies or 

individuals.

39Consumer loans also include motor vehicle loans, credit card loans, and home equity 

loans. 
Letter

Figure 5: Evaluation of Small-Dollar, Nonmortgage Consumer Loans by CRA Examination Type

Page 26 GAO-18-244 Community Reinvestment Act

a

The federal banking regulators interpret “substantial majority” to be so significant a portion of a large 

institution’s lending activity by number and dollar volume of loans that the lending test evaluation 

would not meaningfully reflect its lending performance if consumer loans were excluded.

Support for Community Development

The CRA examination procedures require that a CRA examination 

include an evaluation of a financial institution’s support for community 

development in LMI areas for large and intermediate small institutions but 

not for small institutions.40 However, small institutions may request that 

their CRA examination include an evaluation of their support for 

community development to possibly enhance a Satisfactory CRA rating to 

Outstanding. See figure 6 for a summary of which CRA examination types 

are to include evaluations of support for community development.

 

40As defined under CRA regulations, community development encompasses activities 

such as affordable housing for LMI individuals, community services targeted to LMI 

individuals, or activities that revitalize or stabilize LMI geographies.
Letter

Figure 6: Evaluation of Support for Community Development by CRA Examination Type

Page 27 GAO-18-244 Community Reinvestment Act

aQualified investments include investments and grants that generally serve LMI individuals and areas.

b

The large institution service test also covers retail banking services, as discussed above.

c

The intermediate small institution community development test may cover retail banking services, as 

discussed above.
Letter

Our Analysis Found the Scope of 2015 CRA Performance 

Page 28 GAO-18-244 Community Reinvestment Act

Evaluations Was Consistent with These Procedures

Our review of a representative random sample of 219 performance 

evaluations for CRA examinations conducted in 2015 found that the 

extent to which retail banking services, small-dollar, nonmortgage 

consumer lending, and support for community development in LMI areas 

were evaluated was consistent with the elements included in the 

examination procedures.41 That is, the extent to which these three areas 

were evaluated varied according to the type of examination and the 

institutions’ business models. The discussion below presents estimates of 

and additional details on the extent to which the 2015 CRA examinations 

evaluated these three areas.42

Retail Banking Services

Our review of 2015 CRA performance evaluations found that the extent to 

which retail banking services were evaluated varied by institution size and 

business model, which was consistent with examination procedures. For 

large institutions, the specific types of services evaluated included the 

following:

· On the basis of the CRA performance evaluations reviewed, we 

estimated that 100 percent of the CRA examinations of large 

institutions conducted in 2015 included evaluations of each of the 

following types of retail banking services: branch locations and 

 

41Using data collection instruments based on the CRA examination procedures, w e 

analyzed this sample of CRA performance evaluations to determine the extent to w hich 

they included evaluations of financial institutions’ provision of retail banking services, 

small-dollar, nonmortgage consumer loans, and support for community development in 

LMI communities. Not every examination procedure follow ed during the CRA evaluation 

w as included in the performance evaluations. CRA performance evaluations typically 

include a description of the financial institution; an overview of the scope of the 

examination; conclusions w ith respect to any performance tests; and the institution’s 

rating. Additional information about any analysis or evaluations conducted as part of the 

review is included in supporting w orkpapers that are not publicly available. Our review of 

the w orkpapers for a sample of nine performance evaluations yielded no additional 

substantive information on retail banking services, small-dollar, nonmortgage consumer 

loans, or support for community development beyond w hat w as included in the 

performance evaluations.

42The margin of error for all population estimates presented in each examination category 

(large, intermediate small, and small) is less than +/-11 percent at a 95 percent confidence 

level unless otherw ise specified.
Letter

distribution; branch openings and closings; services provided; and 

hours of operation. Examples of the types of retail banking services 

that were evaluated included institution branches that were 

reasonably accessible to geographies and individuals of different 

income levels in the assessment area; branches that were readily 

accessible to residents of low-income census tracts; and branch 

closures that had not adversely affected LMI communities.

· In terms of products offered, we estimated that 46 percent of the large 

institutions examined for CRA compliance in 2015 offered products 

that received consideration under the service test. FDIC officials told 

us that products are always evaluated under this test, but they may 

not receive CRA consideration and therefore would not be included in 

the performance evaluation.

Page 29 GAO-18-244 Community Reinvestment Act

43 FRB and OCC officials noted that 

products are always considered but may not be specifically mentioned 

in the performance evaluation. Examples of the types of products that 

were evaluated in the CRA examination included a variety of 

consumer banking products designed to help the unbanked, such as 

special checking accounts for individuals whose accounts had been 

closed and charged off by either the bank or another institution due to 

excessive overdrafts. In this example, the special account would be 

converted to a regular checking account after 1 year, and the financial 

institution would notify ChexSystems about the new account.44 In 

another example, a bank offered a secured credit card designed to 

establish or rebuild credit histories.

· In terms of alternative delivery systems, we estimated that 97 percent 

of the examinations of large institutions conducted in 2015 evaluated 

 

43As noted previously, not every examination procedure used during the CRA evaluation is 

included in the public report.

44ChexSystems is a check verification service and consumer credit reporting agency 

ow ned by the eFunds subsidiary of Fidelity National Information Services. Among other 

things, ChexSystems compiles information from banks and credit unions on accounts that 

have been closed due to account misconduct such as overdrafts, insufficient funds 

activity, returned checks, bank fraud, and check forgery. Banks and credit unions 

frequently assess applicants for new checking and other deposit accounts using products 

offered by resellers such as ChexSystems. In June 2006, w e reported that banks w e 

spoke w ith said that the name and identifying information of a customer seeking to open a 

new deposit account w as typically run through the ChexSystems database. The reports 

provided back to the financial institution by ChexSystems typically included identifying 

information, as w ell as information useful in assessing an applicant’s risk, such as the 

applicant’s history of check orders and the source and details of any account misconduct. 

See GAO, Personal Information: Key Federal Privacy Laws Do Not Require Information 

Resellers to Safeguard All Sensitive Data, GAO-06-674 (Washington, D.C.: June 26, 

2006).
Letter

the availability and effectiveness of such systems. Examples of 

alternative delivery systems that were evaluated included Internet 

banking, telephone banking, electronic bill pay, and mobile and text 

banking.

Our review of CRA performance evaluations for intermediate small 

institutions found that retail banking services were generally evaluated, 

which was consistent with examination procedures. On the basis of the 

CRA performance evaluations reviewed, we estimated that 66 percent of 

the examinations of intermediate small institutions conducted in 2015 

included an evaluation of services provided through branches and other 

facilities in LMI areas as part of the community development test. Officials 

at the three federal banking regulators told us that the community 

development test considers multiple factors, and services provided 

through branches are not always evaluated. Examples of services that 

were evaluated included delivery systems that were reasonably 

accessible to individuals of different income levels; extended branch 

operating hours available at all drive-up locations on Fridays; and the 

availability of all of an institution’s loan and deposit products at all 

locations.

Our review of CRA performance evaluations for small institutions found 

that retail banking services were evaluated in a small percentage of the 

reports, which is consistent with such an evaluation not being required but 

being made only at the request of the institution. On the basis of the CRA 

performance evaluations reviewed, we estimated that 6 percent of the 

examinations of small institutions conducted in 2015 included an 

evaluation of investments and retail banking services.

Page 30 GAO-18-244 Community Reinvestment Act

45 One of the small 

institutions evaluated provided a variety of deposit accounts—including 

accounts with low opening balance requirements, unlimited check writing 

privileges, no monthly fees, and free access to electronic banking 

services—that could accommodate lower-income individuals and other 

customers to help them maintain banking relationships with a federallyinsured financial institution.

 

45In our sample of small institution CRA performance evaluations, five institutions 

requested a review of their retail banking services in order to possibly enhance their 

overall rating from Satisfactory to Outstanding. How ever, only one of these five institutions 

received an Outstanding rating. The reports did not indicate w hy there w as no 

improvement in the overall rating for the other four institutions.
Letter

Small-Dollar, Nonmortgage Consumer Loans

Page 31 GAO-18-244 Community Reinvestment Act

Our review of 2015 CRA performance evaluations found that small-dollar, 

nonmortgage consumer loans were evaluated in a small percentage of 

the reports reviewed—which was consistent with examination 

procedures. As discussed previously, consumer loans are not evaluated 

as part of a CRA examination unless (1) consumer loans constitute a 

substantial majority of a large financial institution’s lending or are a major 

product line chosen for review at small or intermediate small institutions, 

(2) for a large institution, small-dollar, nonmortgage consumer loans are 

an example of an innovative or flexible lending practice, or (3) the 

institution requests that consumer loans be evaluated. Further, even in 

cases where consumer loans are evaluated, small-dollar, nonmortgage 

consumer loans may not be included because the institution may not 

provide such loans.

· Large institutions. On the basis of the CRA performance evaluations 

we reviewed, we estimated that 25 percent of the examinations of 

large institutions conducted in 2015 included an evaluation of smalldollar, nonmortgage consumer loans as an innovative or flexible 

product. An example of a loan type that was evaluated included a 

consumer loan product with a maximum 36 percent APR and a term 

that ranged from 6 months to 1 year. The CRA report noted that this 

loan offering was responsive to a need identified by community 

groups.

· Intermediate small institutions. On the basis of CRA performance 

evaluations we reviewed, we estimated that 3 percent of the 

examinations of intermediate small institutions conducted in 2015 

included an evaluation of small-dollar, nonmortgage consumer loans. 

An example of a loan type that was evaluated was very small loans to 

individuals with limited resources. The related report noted the 

institution had 166 active small-dollar, nonmortgage consumer loans 

with an originating balance of less than $1,000, and 303 active loans 

with an originating balance of between $1,000 and $1,500. (The 

smallest originating loan amount was $200.)

· Small institutions. On the basis of CRA performance evaluations we 

reviewed, we estimated that 6 percent of the examinations of small 

institutions conducted in 2015 included an evaluation of small-dollar, 

nonmortgage consumer loans. An example of a loan type that was 

evaluated was a small-dollar loan program offered as an alternative to 

payday loans, for amounts up to and including $2,500. The related 

report noted that the institution had originated 109 such loans ranging 
Letter

in size from $153 to $2,500 for a total dollar volume of $158,610.

Support for Community Development

Page 32 GAO-18-244 Community Reinvestment Act

Our review of 2015 CRA performance evaluations found that support for 

community development was evaluated for all large and intermediate 

small institutions and for a very small percentage of small institutions, 

which was consistent with examination procedures. As discussed 

previously, a CRA examination is to include an evaluation of a financial 

institution’s support for community development in LMI areas for large 

institutions and intermediate small institutions. An evaluation of support 

for community development is not required for small institutions, but they 

may request such an evaluation of support for community development to 

possibly enhance a Satisfactory CRA rating to Outstanding.

On the basis of CRA performance evaluations we reviewed, we estimated 

that 100 percent of the examinations of large institutions conducted in 

2015 included an evaluation of community development lending, qualified 

investments, and community development services provided. An example 

of the types of support for community development that were evaluated 

included an institution originating four community development loans in 

the amount of $1.5 million in its assessment areas. In the related report, it 

was noted that this was an improvement from the institution’s prior 

examination in which the institution had not originated any community 

development loans.

Our review of 2015 CRA performance evaluations for intermediate small 

institutions also found that support for community development was 

evaluated.

· On the basis of the CRA performance evaluations we reviewed, we 

estimated that 100 percent of the examinations of intermediate small 

institutions conducted in 2015 included an evaluation of qualified 

investments and community development services as part of the 

community development test. Examples of these types of support for 

community development that were evaluated included (1) the financial 

institution making 39 donations totaling $27,471 and (2) the financial 

institution’s representatives leading efforts to provide financial, 

technical, or leadership advice for several organizations that foster 

economic development, affordable housing, or social services to LMI 

individuals.
Letter

· In addition, we estimated that 99 percent of these intermediate small 

institution examinations included an evaluation of community 

development lending as part of the community development test. For 

example, one report noted that the institution’s community 

development loans were responsive to community development 

needs, especially in the areas of economic development, affordable 

housing, and revitalization and stabilization of LMI areas.

Our review of CRA performance evaluations for small institutions found 

that support for community development was evaluated in a small 

percentage of reports, which is consistent with such an evaluation being 

made only at the request of the institution. On the basis of CRA 

performance evaluations we reviewed, we estimated that 6 percent of the 

examinations of small institutions conducted in 2015 included an 

evaluation of community development investments.

Page 33 GAO-18-244 Community Reinvestment Act

46 An example of a 

community development investment that was evaluated was a small 

financial institution’s creation of a community development corporation to 

help address the housing shortage for LMI individuals in the community.47

As discussed later in this report, some stakeholders commented that 

examiners may not consistently implement the CRA examination 

procedures. We found during our review of 2015 CRA performance 

evaluations that it was not possible to determine whether there were any 

inconsistencies in the application of procedures by CRA examiners. The 

performance evaluations we reviewed did not contain sufficient details on 

specific services or loans to determine whether they were evaluated the 

same way at different institutions.48 In addition, FRB, FDIC, and OCC 

officials pointed out the need for CRA examiners to use their professional 

judgment in arriving at conclusions about financial institution 

 

46In our sample of small institution CRA performance evaluations, five institutions 

requested a review of their community development investments in order to possibly 

enhance their overall rating from Satisfactory to Outstanding. How ever, only one of these 

five institutions received an Outstanding rating. The reports did not indicate w hy there w as 

no improvement in the overall rating for the other four institutions.

47Community development corporations are not-for-profit organizations incorporated to 

provide programs, offer services, and engage in other activities that promote and support 

community development. They usually serve a geographic location such as a 

neighborhood or a tow n. They often focus on serving low er-income residents or struggling 

neighborhoods. They can be involved in a variety of activities such as economic 

development, education, community organizing, real estate development, and affordable 

housing.

48Due to confidentiality concerns, details about services and loans can only be found in 

the examiners’ w orkpapers.
Letter

performance, particularly as it pertains to performance context. 

Performance context is a broad range of economic, demographic, and 

institution- and community-specific information that an examiner reviews 

to understand the context in which a financial institution’s record of 

performance should be evaluated. CRA examiners will review the 

demographics and credit needs of the financial institution’s assessment 

area, the financial institution’s business strategy, and competition within 

the assessment area in forming the performance context.

The three federal banking regulators take a number of steps to help 

ensure consistency. As previously discussed, CRA examiners use a 

common set of interagency examination procedures to better ensure 

consistency. Further, agency officials told us that CRA examiners receive 

training on all of the CRA examination procedures. Our review of CRA 

examiner training materials showed that provision of retail banking 

services; small-dollar, nonmortgage consumer loans; and support for 

community development was covered. Officials with the three agencies 

also noted that each CRA examination report undergoes supervisory 

review to ensure that examiners followed examination procedures and 

guidelines. For example, FRB officials told us that while the CRA 

examination processes and procedures are the same at every Federal 

Reserve Bank, not every examiner will conduct CRA examinations 

exactly the same way. They stated that FRB’s Reserve Bank Oversight 

section reviews CRA performance evaluations and conducts operational 

reviews to minimize such differences. When variations are noted and 

pointed out to examiners, the officials stated it results in more consistency 

over time. Further, the officials noted that FRB’s Division of Consumer 

and Community Affairs recently completed a systematic review of CRA 

examinations. As a result of that review, FRB issued feedback reports to 

each of the Federal Reserve Banks in May 2017.

Page 34 GAO-18-244 Community Reinvestment Act

49 Similarly, both FDIC 

and OCC officials told us that they have a separate quality assurance 

function to ensure CRA examiners followed examination procedures and 

guidelines.

 

49The contents of the feedback reports w ere for the use of the individual Federal Reserve 

banks only and w ere not publicly available.
Letter

Suggested Options Reflect Need to Balance 

Page 35 GAO-18-244 Community Reinvestment Act

Serving LMI Consumers  with Concerns about 

Profitability and Safety and Soundness

Many stakeholders suggested options for implementing CRA that could 

encourage financial institutions to provide more basic banking services 

and small-dollar, nonmortgage consumer loans to LMI individuals, but 

they noted trade-offs.50 However, some stakeholders noted that some 

options may not be economically feasible and therefore institutions’

concerns about profitability and safety and soundness may outweigh any 

perceived benefits of CRA ratings. Accordingly, stakeholders suggested 

options outside of CRA implementation such as loosening underwriting 

restrictions on loans under a certain dollar amount and clarifying what 

percentage rate on loans is considered allowable by regulators to further 

encourage institutions to make more of these loans.

Options to Change CRA to Help Encourage Basic 

Banking Services and Small-Dollar Loans Would Involve 

Trade-offs

According to knowledgeable stakeholders, options that would change 

how CRA is implemented could further encourage financial institutions to 

provide basic banking services and small-dollar, nonmortgage consumer 

loans in LMI areas. Such options could include modifications to tests 

conducted as part of the CRA examination process, expanding the areas 

and entities assessed as part of the examinations, and clarifying guidance 

about the examination process. However, each would involve trade-offs.

 

50Stakeholders included representatives of think tanks, academia, advocacy groups, 

financial institutions or industry associations, federal banking regulators, and other 

government agencies. We identified suggested options by conducting stakeholder 

interview s and review ing literature. To obtain information on the relative importance of 

these suggested options, w e sent a survey to 66 stakeholders (individuals and 

organizations). We then obtained stakeholder view s on options identified in the survey as 

the most important by holding a series of discussion groups. For more information about 

our methodology for identifying suggested options and obtaining stakeholder view s on 

these options, see appendix I.
Letter

Revising the CRA Service Test to Give More Consideration to 

Page 36 GAO-18-244 Community Reinvestment Act

Basic Banking Services

In the literature we reviewed and interviews, stakeholders suggested 

ways that the CRA service test could be improved to further encourage 

financial institutions to provide basic banking services in LMI areas. 

Suggested modifications to the service test include: 

· Applying the service test to small financial institutions. The 

service test is required only for large financial institutions, but small 

institutions may request that aspects of their services be evaluated. 

For example, small institutions may request that their performance in 

making qualified investments and in providing branches and other 

services and delivery systems that enhance credit availability in their 

assessment area(s) be considered.51 Several stakeholders suggested 

that the service test should be mandatory for small institutions so that 

the services they provide—including the distribution of available 

branches in LMI areas—are assessed. For example, one study that 

suggested this stated that there was ample evidence that the need for 

basic financial services was poorly served by banks, citing the decline 

and relative under-representation of bank branches in low-income and 

minority neighborhoods.52 It also noted that high-cost retail financial 

services, such as payday lenders, had emerged. The study concluded 

that the service test offered only a weak incentive to reverse this 

trend, in part because most banks are not subject to it and therefore 

the number and location of branches they provide are not assessed.

Officials with the three federal banking regulators indicated it was not 

necessary to revise the CRA service test to make it applicable to 

financial institutions of all sizes. Specifically, they noted that if a small 

institution is particularly good at offering targeted services, it has the 

option of requesting that these services be evaluated. However, FDIC 

officials acknowledged that few small institutions elect to do so. 

Further, officials noted that the community development test—which 

applies to intermediate small institutions—encourages them to provide 

services. As noted previously, the examination procedures state that 

 

51Small institutions may request to be evaluated in these areas to try to improve a 

Satisfactory rating to an Outstanding rating.

52R. Quercia, J. Ratcliffe, and M. Stegman, “The Community Reinvestment Act: 

Outstanding, and Needs to Improve,” in Revisiting the CRA: Perspectives on the Future of 

the Community Reinvestment Act (Boston and San Francisco: A Joint Publication of the 

Federal Reserve Banks of Boston and San Francisco, 2009), 47-58.
Letter

intermediate small institutions are evaluated under the community 

development test on the extent to which they provide community 

development services. This can include services provided through 

branches. However, our review of a representative sample of 2015 

CRA performance evaluations found that not all intermediate small 

financial institutions were evaluated on services provided through their 

branches. Additionally, one federal banking regulator representative 

noted that small institutions, particularly community banks, already are 

dissatisfied with the high number of regulations they are subject to.

· Evaluating the usage and effectiveness of products and services. 

Several stakeholders suggested that the service test should evaluate 

not just what products financial institutions offered for LMI consumers 

but also how effective the products were and how often they were 

used by consumers. For example, one paper suggested strengthening 

the service test by, among other things, consistently analyzing the 

size of low-cost account programs, basing examinations of large 

institutions on the number of accounts per census tract, and 

evaluating alternative delivery systems based on effectiveness.

Page 37 GAO-18-244 Community Reinvestment Act

53

 

Alternative delivery systems allow consumers to access financial 

institutions using nontraditional methods such as ATMs, Internet 

banking, and mobile banking. The paper explained that alternative 

systems should be evaluated based on actual usage rates that 

measure effectiveness and extent of service, and not be credited 

simply because they are in place. It noted that creating a more 

objective scorecard for measuring performance under the CRA 

service test could increase banks’ responsiveness to the needs of the 

underbanked. Similarly, another study suggested evaluating the 

number of LMI account holders an institution has and whether they 

hold traditional or more innovative accounts.54 It concluded that 

quantitative measures should allow an institution’s performance to be 

better portrayed under the service test. Representatives from an 

advocacy group we interviewed stated that the service test should be 

more rigorous because when examiners cite innovative banking 

services, they usually do not provide data on the number and volume 

 

53M. Stegman, K. Cochran, and R. Faris, “Creating a Scorecard for the CRA Service 

Test,” Brookings Policy Brief, no. 96 (March 2002).

54M. Barr, “Community Reinvestment Emerging from the Housing Crisis,” in Revisiting the 

CRA: Perspectives on the Future of the Community Reinvestment Act (Boston and San 

Francisco: A Joint Publication of the Federal Reserve Banks of Boston and San 

Francisco, 2009), 170-177. OCC officials commented that income data are not currently 

available for deposit holders and “traditional” and “innovative” accounts w ould have to be 

defined.
Letter

of these services or describe why they are considered innovative or 

low cost.

Multiple participants in our advocacy discussion group also suggested 

collecting additional data under the service test would allow for a more 

quantifiable way to assess a financial institution’s performance. 

However, one participant explained that revising the service test to 

require additional data on deposit accounts would not be received well 

by the industry as banks would be likely to object to the cost 

associated with collecting new data.

FDIC officials told us that the CRA Q&As address the usage and 

effectiveness of products and services.

Page 38 GAO-18-244 Community Reinvestment Act

55 However, they noted they 

could not speak to potential gaps in examiners actually following this 

guidance. Further, participants in our federal banking regulator 

discussion group noted that regulators expanded consideration of 

usage of banking services in updated CRA Q&As published in July 

2016.56 The updated Q&As state that one of six factors that examiners 

may consider to determine whether a financial institution’s alternative 

delivery system is an available and effective means of delivering retail 

banking services in LMI geographies and to LMI individuals is the rate 

of adoption and use.57 However, financial institutions are not required 

to provide such information and this provision only applies to 

alternative delivery systems.

· Penalizing activities that undermine the provision of quality 

services. Several stakeholders suggested that CRA examiners could 

reduce the scores they give financial institutions on the service test for 

engaging in activities that do not protect LMI consumers. For 

example, one study stated that CRA examiners should reduce the 

scores they give institutions that are in arrangements with affiliates or 

other parties that do not provide adequate consumer protection.58

 

55FDIC officials noted that the following CRA Q&As address usage and effectiveness: § 

__.21(a)-3; .24(a)-1; .24(d)-1; .24(d)(3)-1 and .28(b)-1. 81 Fed. Reg. 48506 (July 25, 

2016).

56The federal banking regulators issued updates to the CRA Q&As in July 2016 after 

accepting and considering public comments on proposed updates. 81 Fed. Reg. 48506 

(July 25, 2016).

57Interagency Questions and Answers Regarding Community Reinvestment § __.24(d)(3) 

– 1. 81 Fed. Reg. 48506, 48542 (July 25, 2016). The other five factors are: ease of access 

(physical or virtual), cost to consumers as compared w ith the institution’s other delivery 

systems, the range of services delivered, the ease of use, and the reliability of the system.

58M. Barr, “Community Reinvestment Emerging from the Housing Crisis,” 170-177.
Letter

Another study suggested a similar change because CRA does not 

discourage counter-productive behaviors such as offering free 

checking accounts with costly overdraft protection.

Page 39 GAO-18-244 Community Reinvestment Act

59

Two participants in our advocacy discussion group supported giving 

lower CRA scores to financial institutions that received large revenues 

from overdraft fees, with one noting that it would be difficult to get 

banks to offer reasonably priced small-dollar loans as long as 

overdraft programs remain so lucrative. However, participants in our 

think tank and industry discussion groups were concerned that 

revising the service test to penalize bank activities that undermine the 

provision of quality services could change CRA into a compliance 

exam, rather than a means of encouraging financial institutions to 

provide such services. Similarly, one participant in the industry group 

noted that a bank’s overdraft revenue was not relevant to encouraging 

small-dollar lending to LMI communities and therefore should not be 

included in the CRA process.

Consistent with the concerns expressed by these stakeholders, one 

participant in the industry discussion group noted that expanding the 

service test to explicitly examine the amount of overdraft fees 

collected by financial institutions is unnecessary. An official who was 

part of our federal banking regulator discussion group noted that 

unfair and deceptive acts and practices—which could include 

excessive overdraft fees—are already evaluated under the consumer 

compliance examinations that the federal banking regulators also 

conduct. Such consumer compliance examinations assess financial 

institutions’ compliance with federal consumer protection laws and fair 

lending statutes and regulations. The examination procedures for 

CRA examinations call for the regulators to review the results of the 

most recent compliance examination and determine whether evidence 

of discriminatory or other illegal credit practices should lower the 

institution’s CRA rating.

· Rewarding financial institutions for additional products and 

services, such as helping LMI consumers build wealth through 

savings accounts. Stakeholders suggested several additional 

products and services that they thought should get consideration 

under the service test. For example, one former FDIC chair we spoke 

with stated that regulators should give financial institutions credit for 

helping consumers build wealth through savings accounts. A group 

 

59R. Quercia, J. Ratcliffe, and M. Stegman, “The Community Reinvestment Act: 

Outstanding, and Needs to Improve,” 47-58.
Letter

that commented on the proposed updates to the CRA Q&As 

suggested providing CRA credit to those institutions offering clearing 

and processing services to other institutions that (1) provide fair and 

low-cost remittance services below market average prices to 

underserved communities, (2) offer entry-level banking services for 

the unbanked that can help provide access to additional financial 

services in those underserved communities, and (3) serve companies 

or institutions that have had difficulty securing clearing and processing 

services.

Page 40 GAO-18-244 Community Reinvestment Act

60 A survey respondent suggested that consideration be 

given under the service test for digital banking services with a specific 

link to underserved and LMI markets. That respondent recommended 

credit under the service test for offering second-chance checking 

accounts to customers with a prior negative account history.

Two regulatory stakeholders were cautious about suggested options 

in this area. For example, a participant in our nonfederal banking 

regulator discussion group explained that brick-and-mortar bank 

locations are important to LMI communities and the service test 

should not be modified in such a way that institutions would not get 

credit for those brick-and-mortar locations. Additionally, a participant 

in our federal banking regulator discussion group mentioned that the 

CRA Q&As make reference to low-cost accounts and other services 

that banks can provide to get CRA consideration.61 However, these 

banking services are currently evaluated for large institutions only.

 

60Check clearing or bank clearance is the process of moving a check from the bank in 

w hich it w as deposited to the bank on which it w as draw n, and the movement of the 

money in the opposite direction. This process is called the clearing cycle and normally 

results in a credit to the account at the bank of deposit, and an equivalent debit to the 

account at the bank on w hich it w as draw n. Remittance services include many types of 

international transfers including cash-to-cash money transfers, international w ire transfers, 

some prepaid card transfers, and automated clearing house transactions. The automated 

clearing house is a system that clears and settles batched electronic transfers for 

participating depository institutions.

61In Interagency Questions and Answers Regarding Community Reinvestment § __.24(a) 

– 1, the regulators state that the following are examples of retail banking services that 

improve access to financial services, or decrease costs, for LMI individuals: low -cost 

deposit accounts; free or low -cost government, payroll, or other check cashing services; 

and reasonably priced international remittance services. 81 Fed. Reg. 48506, 48542 (July 

25, 2016).
Letter

Revising the CRA Lending Test to Give More Consideration for 

Page 41 GAO-18-244 Community Reinvestment Act

Small-Dollar, Nonmortgage Consumer Loans

Stakeholders suggested evaluating the quality of loans and providing 

more consideration under the lending test for small-dollar, nonmortgage 

consumer loans. One advocacy group representative told us that because 

small-dollar loans are not profitable, revising the lending test would give 

banks a regulatory incentive to make such loans. However, an industry 

representative noted that due to the economics and risks of small-dollar 

loans, banks would need to receive considerable consideration for them 

under the lending test for this incentive to work. Industry representatives 

further noted that if the economics of such loans do not work, CRA will 

have little effect regardless of any changes to the lending test.

Stakeholders suggested the following three modifications to the lending 

test:

· Evaluating quality of loans. Stakeholders suggested more focus on 

loan quality. An advocacy group representative we interviewed 

suggested CRA examiners could use the proposed CFPB regulations 

on acceptable consumer credit to assess small-dollar, nonmortgage 

consumer loans.62 One study noted that many banks provide the 

funding to support payday lenders, lenders that may charge APRs of 

nearly 400 percent on short-term loans.63 The authors stated that 

funding such lending undermines financial security, and banks should 

receive negative (and certainly not positive) scores on their CRA tests 

for doing so.

One participant in the industry discussion group expressed concern 

about revising the lending test in a way that would penalize financial 

institutions for the underwriting methods they used to originate smalldollar consumer loans. The participant explained that having more 

scrutiny of such loans could cause small-dollar loans to become too 

costly to make. A non-CRA regulatory discussion group participant 

mentioned that institutions are already subject to consumer 

compliance examinations, which assess compliance with federal 

consumer protection laws.

 

62As discussed later in this report, the CFPB regulations w ere finalized on November 17, 

2017.

63R. Quercia, J. Ratcliffe, and M. Stegman, “The Community Reinvestment Act: 

Outstanding, and Needs to Improve,” 47-58.
Letter

Consistent with participants in the industry discussion group, the 

federal banking regulators indicated that examiners consider any 

information related to discriminatory or illegal credit practices found 

during compliance examinations when a final CRA rating is assigned. 

FDIC officials also noted that the CRA Q&As call for qualitative factors 

to be considered under the lending test.

Page 42 GAO-18-244 Community Reinvestment Act

64

· Collecting more data on consumer lending. There are no CRA 

data reporting requirements for consumer loans. Representatives 

from an advocacy organization suggested that the federal banking 

regulators collect such data for banks with sizable amounts of this 

type of lending. They noted that such data could then be aggregated 

into a database that would give some indication of the extent to which 

consumer lending is reaching LMI borrowers. Additionally, a 

participant in our advocacy discussion group noted that financial 

institutions might appreciate a more systematic collection of data on 

consumer lending that would enable them to compare themselves to 

their peers in the marketplace. However, collecting and maintaining 

additional data would present a cost to financial institutions. One 

advocacy group representative stated that there is a need to balance 

the benefits of additional data collection with the burden of collecting 

these data. Officials with the federal banking regulators did not 

comment on this suggested change.

· Providing more credit under the lending test for small-dollar, 

nonmortgage consumer loans. Some stakeholders suggested 

giving financial institutions additional CRA credit for small-dollar, 

nonmortgage consumer loans. First, in comments on the proposed 

changes to the CRA Q&As, a nonprofit organization stated that the 

lending test should be revised to provide more incentives for CRAregulated institutions to enter geographies where there is a high 

penetration of high-cost lenders. Second, an advocacy group 

representative suggested that more CRA credit go to providing lowcost consumer loans using innovative products. Third, FDIC reported 

that participants in its small-dollar loan pilot program suggested smalldollar lending should receive more emphasis in CRA examinations, 

even if the particular program is small.65

 

64FDIC officials cited § __.21(a)-3; .22(a)-1; and .28(b)-1. 81 Fed. Reg. 48506 (July 25, 

2016).

65Federal Deposit Insurance Corporation, “A Template for Success: The FDIC’s SmallDollar Loan Pilot Program,” FDIC Quarterly, vol. 4, no. 2 (2010).
Letter

One participant in our advocacy discussion group explained that 

small-dollar loans are not profitable, so revising the lending test would 

give banks a regulatory incentive to make such loans. A participant in 

our industry discussion group suggested giving specific credit for 

providing small-dollar loans in low-income areas, even if they do not 

comprise a substantial majority of a financial institution’s lending. 

However, two other participants stated that due to the economics and 

risks of small-dollar loans, banks would require a lot of CRA credit for 

this incentive to counteract those concerns. Further, participants in 

our think tank discussion group expressed a concern that increasing 

the importance of small-dollar loans would dilute the CRA’s emphasis 

on home mortgage lending.

Page 43 GAO-18-244 Community Reinvestment Act

66

In commenting on these suggested modifications to the lending test, 

officials with the federal banking regulators told us CRA examiners 

determine how much consideration to give for small-dollar, nonmortgage 

loans based on the responsiveness of such lending to community needs 

and performance context. They noted that an institution’s performance 

context includes elements such as institutional capacity and constraints 

and lending opportunities in the financial institution’s assessment area. 

However, as the lending test relies heavily on an evaluation of the 

institution’s loan products that comprise a substantial majority of its 

lending or are a major product line, small-dollar loans would rarely be 

considered.

Expanding CRA Assessment Areas to Include Services or Loans 

Provided Outside of a Financial Institution’s Geographic Area

In the literature we reviewed and interviews, stakeholders suggested that 

regulators could broaden the definition of a bank’s assessment area to 

better reflect financial markets as they exist today rather than as they 

were when CRA was enacted in 1977. This would allow examiners to get 

a better understanding of how well an institution is serving LMI 

communities, because the geographic area subject to examination would 

be broader. For example, one article explained that when CRA was 

enacted banks received deposits and made loans through branches, but 

today there are banks that make the majority of their loans through 

 

66CRA w as enacted, in part, in response to concerns about redlining, or banks’ refusal to 

offer home loans in certain neighborhoods based on the income or racial composition of 

the area. Because home mortgages are a primary lending product for many banks, they 

are often a key component of CRA review s.
Letter

brokers and other non-branch means.

Page 44 GAO-18-244 Community Reinvestment Act

67 Another article noted that given 

the dramatic changes in the financial landscape, including new 

organizational structures (such as financial holding companies, 

multinational financial enterprises, and nonbank lenders) and new 

delivery mechanisms (such as Internet, mobile, and phone banking), the 

traditional concept of the assessment area no longer captures a lender’s 

community.68 A third article noted that consolidation, regulatory change, 

expansion, and technology have loosened the geographic constraints 

once faced by traditional branch banking.69

Stakeholders were mixed in their views on the extent to which expanding 

assessment areas would further encourage financial institutions to 

provide basic banking services and small-dollar, nonmortgage consumer 

loans. A participant in our advocacy discussion group stated that if banks 

are providing basic banking services and small-dollar loans outside 

current assessment areas, expansion of the definition would be helpful. 

However, a participant in the same group noted that there is little data on 

where banks deliver such services and products, so it may be difficult to 

determine whether an expansion of the definition of a bank’s assessment 

area is needed. A participant in our think tank discussion group also 

noted that expanding assessment areas was unlikely to boost small-dollar 

loan offerings because small-dollar loans tend to be unprofitable. Federal 

banking regulator officials explained that it would be difficult to come up 

with a singular definition for assessment areas that applies across a 

variety of different business models. However, as others have pointed 

out, the current definition does not always align with modern practices.

Other stakeholders were concerned about the effect that expanding 

assessment areas to include electronic transactions might have on 

physical branch locations. One advocacy group representative noted that 

technological solutions that enable banks to service customers outside of 

 

67J. Taylor and J. Silver, “The Community Reinvestment Act: 30 Years of Wealth Building 

and What We Must Do to Finish the Job,” in Revisiting the CRA: Perspectives on the 

Future of the Community Reinvestment Act (Boston and San Francisco: A Joint 

Publication of the Federal Reserve Banks of Boston and San Francisco, 2009), 148-159.

68R. Essene and W. Apgar, “The 30th Anniversary of the CRA: Restructuring the CRA to 

Address the Mortgage Finance Revolution,” in Revisiting the CRA: Perspectives on the 

Future of the Community Reinvestment Act (Boston and San Francisco: A Joint 

Publication of the Federal Reserve Banks of Boston and San Francisco, 2009), 12-29.

69R. Quercia, J. Ratcliffe, and M. Stegman, “The Community Reinvestment Act: 

Outstanding, and Needs to Improve,” 47-58.
Letter

their physical locations are not a substitute for bank branch and deposit 

services. In the updated CRA Q&As issued in July 2016, the federal 

banking regulators agreed, explaining that they were withdrawing some 

proposed revisions to avoid the unintended inference that branches are 

less important in providing financial services to LMI geographies.

Page 45 GAO-18-244 Community Reinvestment Act

70

The federal banking regulators noted examiners can already consider 

activities outside of a financial institution’s assessment areas. Specifically, 

the CRA Q&As state that examiners may consider loans, including loans 

to LMI borrowers, outside a financial institution’s assessment areas, 

provided the institution has adequately addressed the needs of borrowers 

within its assessment area.71

Expanding CRA to Include All Affiliates of Financial Institutions and 

Additional Entities Such as Credit Unions and Nonbanks

Stakeholders suggested changing regulations to require inclusion of bank 

affiliates in CRA examinations and revising the CRA statute to expand 

CRA to entities outside of banks.72 Specifically, stakeholders suggested 

the following two modifications:

· Revising regulations to require inclusion of financial institution 

affiliates and subsidiaries in CRA examinations. A number of 

articles we reviewed outlined concerns with allowing financial 

institutions to choose whether to include their affiliates in their CRA 

examinations. One article stated that banks may choose to include 

their affiliates in their CRA examinations if the affiliates’ activities will 

 

70The regulators proposed to revise Interagency Questions and Answers Regarding 

Community Reinvestment § __.24(d) – 1, w hich addresses how examiners should 

evaluate the availability and effectiveness of an institution’s systems for delivering retail 

banking services. Specifically, they proposed to delete the statements that “performance 

standards place primary emphasis on full-service branches” and that alternative delivery 

systems are considered “only to the extent” that they are effective alternatives in providing 

needed services to low - or moderate-income geographies and individuals. The proposal 

w as intended to encourage broader availability of alternative delivery systems to low - or 

moderate-income geographies and individuals w ithout diminishing the value full-service 

branches offer to communities. Almost all community organization commenters opposed 

the proposed revisions, asserting that branches continue to be uniquely important to low -

and moderate-income neighborhoods. 81 Fed. Reg. 48506, 48515 (July 25, 2016).

71See Interagency Questions and Answers Regarding Community Reinvestment

§__.22(b)(2) & (3)—4.

72Under current regulations, financial institutions are allow ed to choose w hether their 

affiliates are included in their CRA examinations.
Letter

be viewed positively by examiners but exclude them otherwise.

Page 46 GAO-18-244 Community Reinvestment Act

73

Another article noted that illegal practices on the part of a bank’s 

affiliate would count against the institution only if the bank elects to 

have its affiliate’s lending activity included in the examination.74

Another article suggested that any for-profit subsidiary or holding 

company affiliate that provides any essential products be evaluated in 

the same manner and at the same time as the largest bank or thrift in 

the holding company group.75

One participant in our advocacy discussion group noted that 

mandatory inclusion of affiliates in CRA examinations would allow for 

downgrades to automatically apply if the affiliate is originating loans 

that are harmful to LMI consumers. A second participant in the same 

group stated including affiliates in CRA assessments could 

discourage banks from sending LMI clients who do not qualify for their 

loans to affiliates for subprime loans. The first participant agreed and 

noted that expanding CRA to include affiliates could discourage banks 

from investing in abusive payday lenders. Similarly, a participant in 

our industry discussion group stated that expanding CRA to cover 

finance companies that were owned by a bank or that a bank had 

some financial interest in could help combat predatory lending.

In their 1995 revisions to the CRA regulations, FRB, FDIC, and OCC 

noted that many industry commenters opposed consideration of 

affiliate lending except at the institution’s option on the ground that 

consideration without the institution’s consent may be equivalent to 

extending CRA coverage to affiliates that may not be subject to the 

statute.76 Some community and consumer groups supported 

consideration of affiliate activity and urged that the regulatory 

language be strengthened to require the agencies to take affiliate 

lending into account under certain circumstances. In the final rule, 

affiliate lending is considered only at the election of the institution, 

except with regard to the lending activity criterion, where it will provide 

context for the assessment in order to discourage an institution from 

 

73J. Taylor and J. Silver, “The Community Reinvestment Act: 30 Years of Wealth Building 

and What We Must Do to Finish the Job,” 148-159.

74See R, Quercia, J. Ratcliffe, and M. Stegman, “The Community Reinvestment Act: 

Outstanding, and Needs to Improve,” 47-58.

75E. Seidman, “A More Modern CRA for Consumers,” in Revisiting the CRA: Perspectives 

on the Future of the Community Reinvestment Act (Boston and San Francisco: A Joint 

Publication of the Federal Reserve Banks of Boston and San Francisco, 2009), 105-114.

7660 Fed. Reg. 22156 (May 4, 1995).
Letter

inappropriately influencing an evaluation of its CRA performance by 

conducting activities that would be viewed unfavorably in an affiliate.

· Revising the CRA statute to expand CRA to nonbanks.

Stakeholders also suggested expanding CRA to nonbanks such as 

credit unions, investment banks or broker dealers, and emerging 

nonbank lenders. First, an issue brief from an advocacy group 

suggested that applying CRA to mainstream credit unions would 

bolster their branching and lending to LMI populations, noting that 

credit unions were more apt to retreat from modest-income 

neighborhoods during the Great Recession in part because banks 

have CRA obligations while credit unions do not.

Page 47 GAO-18-244 Community Reinvestment Act

77 Participants in our 

think tank discussion group also discussed bringing credit unions 

under CRA-like regulations, agreeing that requirements to perform 

CRA-like duties in return for maintaining charters or a designation as 

a community development financial institution (CDFI) would make 

sense.78 However, one participant in our nonfederal banking regulator 

discussion group stated it was not necessary to expand CRA to 

include credit unions because credit unions are owned by their 

members and therefore are already playing a vital role in their 

community.

Second, one study suggested including additional institutions, such as 

investment banks or broker-dealers, in return for access to the 

Federal Reserve’s discount window.79 The study explained that 

expanding CRA to the same institutions that benefited from that safety 

net would result in greater consumer access to the full range of 

 

77National Community Reinvestment Coalition, “Why Branch Closures Are Bad for 

Communities” (Washington, D.C.: April 2012).

78CDFIs expand economic opportunity in low -income communities by providing access to 

financial products and services for local residents and businesses. They can be banks, 

credit unions, loan funds, microloan funds, or venture capital providers.

79L. Cohen and R. Agresti, “Expanding the CRA to All Financial Institutions,” in Revisiting 

the CRA: Perspectives on the Future of the Community Reinvestment Act (Boston and 

San Francisco: A Joint Publication of the Federal Reserve Banks of Boston and San 

Francisco, 2009), 134-137. When the Federal Reserve System w as established in 1913, 

lending reserve funds through the discount window w as intended as the principal 

instrument of central banking operations. Although the w indow was long ago superseded 

by open market operations as the most important tool of monetary policy, it still plays a 

complementary role. The discount w indow functions as a safety valve in relieving 

pressures in reserve markets; extensions of credit can help relieve liquidity strains in a 

depository institution and in the banking system as a w hole. The w indow also helps 

ensure the basic stability of the payment system more generally by supplying liquidity 

during times of systemic stress.
Letter

financial services. Third, another study suggested that CRA should be 

uniformly expanded to cover newly emerging nonbank lenders, such 

as independent mortgage banking companies.

Page 48 GAO-18-244 Community Reinvestment Act

80 The study suggested 

that because nonbanks are not uniformly regulated, consumers 

cannot rely on the uniform benefits of legally mandated federal 

oversight.

However, one participant in our industry discussion group suggested 

that if CRA does not effectively incentivize banks to offer small-dollar 

loans to LMI consumers, then expanding it to additional entities may 

not address that issue. Another participant elaborated, stating that 

nonbanks, like banks, will only make small-dollar loans if such loans 

are profitable, regardless of whether they are subject to CRA. Further, 

the federal banking regulators stated that expanding CRA to include 

additional entities would probably capture more of the small business 

and home mortgage markets. However, they added that expanding 

CRA to include more entities would require legislative action because 

they lack the authority to do so.

Issuing Additional CRA Guidance

CRA guidance includes regulations, publicly available examination 

procedures, and Q&As. In the literature we reviewed and interviews, 

stakeholders suggested that additional specific information in this 

guidance on basic banking services and small-dollar, nonmortgage 

consumer loans could further encourage financial institutions to provide 

such services and loans. For example, representatives from an advocacy 

organization suggested that the CRA Q&As be updated to provide more 

specific examples of basic banking services and small-dollar, 

nonmortgage consumer loans that can receive CRA credit.

Three participants in our think tank discussion group believed that issuing 

additional guidance was necessary because banks they previously spoke 

with indicated a lack of guidance and general uncertainty about 

acceptable products was preventing them from moving forward with new 

products. For example, one participant noted that greater certainty on 

what regulators consider to be acceptable products might make lenders 

more willing to invest the necessary resources to create new products. 

One participant in our nonfederal banking regulator discussion group 

agreed that more guidance and clarification on how different activities are 

 

80R. Essene and W. Apgar, “The 30th Anniversary of the CRA: Restructuring the CRA to 

Address the Mortgage Finance Revolution,” 12-29.
Letter

viewed by CRA examiners would be the most useful way to communicate 

that these activities will receive CRA credit. Specifically, she stated that it 

is important to communicate through the Q&As or examiner training the 

goal of encouraging banks to make more small-dollar, nonmortgage 

loans. One example of such guidance would be preparing a template of 

an acceptable small-dollar loan product, such as the one resulting from 

FDIC’s small-dollar loan pilot.

Participants in our advocacy and industry discussion groups further 

explained that clear guidance would help address variation in how 

different CRA examiners interpret CRA provisions. One participant in our 

industry discussion group also noted inconsistencies across examiners 

and commented that more guidance would be helpful in reducing such 

inconsistencies. In particular, the participant noted that examiners could 

benefit from additional guidance that clarifies that small-dollar loans will 

have higher losses because of the increased risk associated with these 

products. Other discussion group participants agreed but noted that 

issuing additional guidance may be problematic. One participant in our 

advocacy discussion group noted that the additional guidance federal 

banking regulators issue is generally limited to revisions to the 

interagency Q&As, which may not be seen as requirements. Additionally, 

a participant in our industry discussion group noted it may be difficult for 

regulators to agree on additional guidance in a timely manner. For 

example, the most recent revisions to the Q&As took two years to finalize.

Another participant in the industry discussion group indicated that 

guidance could evolve into actual requirements and thereby become 

narrowly focused. Further, one participant in our nonfederal banking 

regulator discussion group stated that the federal banking regulators 

would need to ensure that additional guidance did not create additional 

burdens for smaller financial institutions that would take away from their 

ability to meet the needs of their borrowers and depositors. Participants in 

our industry and nonfederal banking regulator discussion groups noted 

that basic banking services and small-dollar loans are not always 

profitable and that further guidance will not solve that problem.

However, federal banking regulatory officials told us that they believed 

that their recent guidance does encourage institutions to make smalldollar consumer loans. They noted that they had provided additional 

guidance on small-dollar loan programs in the updated Q&As. The prior 

Q&As had noted that small, unsecured consumer loans provided in a safe 

and sound manner (i.e., based on the borrower’s ability to repay) and with 

reasonable terms are an example of a lending activity that helps meet the 

Page 49 GAO-18-244 Community Reinvestment Act
Letter

credit needs of the community, and the updated Q&As issued in 2016 

also stated that these products were an example of innovative or flexible 

lending.

Page 50 GAO-18-244 Community Reinvestment Act

81 However, respondents to our survey and participants in our 

discussion groups indicated the importance of additional CRA guidance 

after the issuance of these revised Q&As.

Treasury Plans Review of CRA Framework 

In June 2017, Treasury announced plans to lead a review of how CRA is 

being implemented, though the agency did not have a timeline for 

completing this review. It identified the need for a review of CRA as part 

of its evaluation of existing laws and regulations required under Executive 

Order 13772.82 Treasury noted the importance of modernizing the 

regulatory system to reflect how financial institutions currently do 

business while serving the financial needs of consumers.83 Therefore, the 

agency announced it was planning a review of the CRA framework.

As noted previously, lower-income households were more likely to obtain 

credit or conduct financial transactions through an AFS provider and less 

likely to have a checking or savings account with a bank or credit union 

than their higher-income counterparts. Further, lower-income households 

were more likely to be unbanked because they lacked sufficient funds, 

credit, or personal identification. Treasury’s June 2017 report states that 

statutes of critical importance to the banking sector—including CRA—

should better target the response to the risks that American consumers 

and the American economy face. The suggested options for improving 

how CRA is currently being implemented that our work identified are 

worth serious consideration as part of any evaluation of the CRA 

framework. Given the continuing unmet needs of LMI communities in 

obtaining basic banking services and small-dollar credit, consideration of 

these important options could help inform Treasury’s review of the CRA 

framework and thereby further encourage financial institutions to provide 

these services and products.

 

81See Interagency Questions and Answers Regarding Community Reinvestment § 

__.22(a) – 1 and § __.22(b)(5) – 1. 81 Fed. Reg. 48506, 48536, 48538 (July 25, 2016).

8282 Fed. Reg. 9965 (Feb. 3, 2017).

83U.S. Department of the Treasury, A Financial System That Creates Economic 

Opportunities: Banks and Credit Unions.
Letter

Suggestions to Address Small-Dollar Loan Profitability 

Page 51 GAO-18-244 Community Reinvestment Act

and Safety and Soundness Concerns also Include TradeOffs

Some stakeholders noted that institutions’ concerns about profitability and 

safety and soundness may outweigh any perceived benefits of CRA 

ratings and play a larger role in whether they provide more small-dollar, 

nonmortgage consumer loans.84 Some advocacy representatives noted 

that small-dollar loans are typically less profitable than alternative loan 

products financial institutions offer, such as overdraft protection 

programs. For example, one noted that small-dollar loans are not 

profitable due to underwriting standards and limits on interest rates. They 

also told us that financial institutions may be discouraged from making 

small-dollar consumer loans with interest rates greater than 36 percent 

because of perceived prohibitions against such rates, which further 

affects profitability.

Advocacy group representatives also observed that financial institutions 

that receive overdraft protection fee income may not want to lose this 

income by instead offering their customers lower-cost, small-dollar credit 

options that would directly compete with overdraft protection. Finally, 

advocacy and think tank representatives observed that unsecured, smalldollar loans can pose a risk to financial institutions because such loans 

typically have higher default rates. As a result, financial institutions may 

want to avoid offering products that may be deemed unsafe or unsound 

by the federal banking regulators. 

Stakeholders suggested actions they believed the federal banking 

regulators could take to address profitability and safety and soundness 

concerns associated with offering small-dollar, nonmortgage consumer 

loans to LMI individuals. For example, they suggested loosening the 

underwriting requirements for loans under a certain dollar amount, 

thereby lowering the cost of originating such loans. However, advocacy 

group representatives noted that loosening underwriting requirements 

could be perceived as deregulation of the industry.

 

84This section does not discuss basic banking services, as stakeholder concerns w ere 

primarily focused on small-dollar lending. How ever, some stakeholders noted that due to 

the typically low -dollar balances in accounts maintained by LMI individuals, financial 

institutions have concerns about the profitability of basic banking services as w ell. 
Letter

In addition, some think tank and industry representatives suggested that 

the federal banking regulators should clarify what is considered an 

acceptable interest rate for small-dollar consumer loans. They noted that 

the perception exists that financial institutions are not allowed to charge 

interest rates that are higher than 36 percent for small-dollar consumer 

loans, even if such rates would be much lower than those offered on 

payday loans. However, some industry group representatives believed it 

would be unlikely that the federal banking regulators would give CRA 

consideration for small-dollar loans with interest rates above 36 percent.

Some stakeholders also noted that minimizing compliance risk—risk 

arising from violations of, or nonconformance with, laws, rules, and 

regulations—would allow banks to offer profitable and safe small-dollar 

loans. For example, representatives from a think tank stated that financial 

institutions will not make small-dollar loans if they have to be fully 

underwritten, citing exposure to compliance risk if not done correctly. (For 

a more detailed discussion of these issues and other suggested options 

unrelated to CRA that address serving LMI consumers, see app. IV).

In commenting on these suggested actions, a federal banking regulator 

official noted that easing underwriting rules could be perceived as 

undermining safety and soundness. Further, officials with the federal 

banking regulators told us no federal laws authorize them to set the 

interest rates financial institutions may charge on small-dollar, 

nonmortgage consumer loans.

Page 52 GAO-18-244 Community Reinvestment Act

85 In 2007, FDIC issued guidance to the 

institutions it supervises on small-dollar loans that encourages an interest 

rate of no more than 36 percent.86 However, FDIC officials noted this is 

merely guidance, not a regulation. Nonetheless, as noted previously, the 

perception of a 36 percent interest rate cap persists. Officials with FRB, 

FDIC, and OCC noted that CRA examiners, on a case by case basis, 

determine whether a loan program complies with applicable laws and is 

responsive to the community. They explained that a small-dollar 

consumer loan with an interest rate above 36 percent could receive 

positive CRA consideration, depending on other factors such as the 

context in which the loan was made, the communities in which the bank 

offered the loan, and the other types of programs available in the 

 

85The Military Lending Act, as implemented by the Department of Defense, prohibits 

creditors from offering most consumer credit at more than a 36 percent rate to service 

members and their families. See 10 U.S.C. 987. 

86Federal Deposit Insurance Corporation, “Affordable Small-Dollar Loan Products: Final 

Guidelines,” Financial Institution Letter (FIL)-50-2007 (Washington, D.C.: June 19, 2007).
Letter

community. The officials stated that CRA examiners take all of these 

factors into consideration in making decisions about offering CRA 

consideration for small-dollar consumer loan programs, not simply the 

interest rate offered.

A new CFPB rule issued in November 2017 addresses some elements of 

acceptable small-dollar consumer loans, but its impact on financial 

institutions’ willingness to make small-dollar, nonmortgage consumer 

loans is unclear.

Page 53 GAO-18-244 Community Reinvestment Act

87 In addition, financial technology (fintech) may enable 

firms to serve customers who are not profitable to serve using traditional 

means, and thus provide access to a range of products and services 

previously unavailable to them and on more affordable terms than highcost alternatives such as payday loans.88 For example, using alternative 

data may allow fintech lenders to offer loans to customers whose

traditional credit history may not have been sufficient for banks to extend 

them credit. CFPB officials stated that using alternative data—including 

bill payment history as a proxy for debt repayment—could expand 

responsible access to credit, particularly to some individuals who are 

among the estimated 45 million people who lack traditional credit scores.

 

87On November 17, 2017, CFPB issued a final rule that, among other things, governs the 

underw riting of certain personal loans with short-term or balloon payment structures. See 

“Payday, Vehicle Title, and Certain High-Cost Installment Loan Rule,” 82 Fed. Reg. 54472 

(Nov. 17, 2017). According to CFPB, the rule is “aimed at stopping payday debt traps by 

requiring upfront w hether consumers have the ability to repay their loans.” Under the new

rule, lenders that make short-term loans of 45 days or less or longer-term balloon payment 

loans generally must make an “ability-to-repay” determination, that is, must reasonably 

determine that the consumer w ill be able to make payments on the loan w hile also 

meeting major financial obligations and basic living expenses. (Loans made by a lender 

w ho makes 2,500 or few er covered loans per year and derives no more than 10 percent of 

its revenue from such loans are exempt from the CFPB rule. According to CFPB, these 

are usually small personal loans made by community banks or credit unions to existing 

customers or members.) The rule also covers a third type of loan—loans w ith a term 

longer than 45 days w ith an APR over 36 percent that gives the lender account access. 

These loans are not subject to the ability-to-repay provisions but are subject to certain 

penalty fee prevention provisions. According to CFPB, these protections give consumers a 

chance to dispute any unauthorized or erroneous attempts by a lender to collect payment 

from the borrow er’s account and to arrange for unanticipated payments that are due. 

Since the compliance date for most provisions of the rule, including these provisions, is 

August 2019, its impact on banks’ w illingness to make small-dollar, nonmortgage 

consumer loans is not currently clear. CFPB recently released a statement that it intended 

to engage in a rulemaking process that reconsidered the payday rule.

88Financial technology, or “fintech,” subsectors such as marketplace lending and mobile 

payments may provide consumers w ith additional options for accessing credit and banking 

services. 
Letter

Conclusions

Page 54 GAO-18-244 Community Reinvestment Act

Treasury is planning to identify ways to improve the CRA framework in 

order to encourage financial institutions to better serve the financial needs 

of consumers. Our analysis has shown and Treasury recognizes that 

many LMI consumers’ need for basic banking services and small-dollar 

loans is not being met by traditional financial institutions. For example, we 

found that although most LMI communities have as many banks and 

credit unions nearby as middle-income communities and the vast majority 

of Americans have a checking account, lower-income households are 

more likely to use costly AFS providers to meet their credit needs. 

Changes to CRA implementation we outlined could motivate financial 

institutions to make greater efforts to provide more of the low-cost 

services and loans LMI consumers are currently seeking outside the 

banking system. Giving careful consideration to these suggested options 

would help Treasury revise the current supervisory and regulatory 

framework to better align the benefits arising from financial institutions’

CRA investments with the interest and needs of the communities that 

they serve, including the need for basic banking services and small-dollar 

consumer credit.

Recommendation  for Executive Action

The Secretary of the Treasury should direct the Deputy Assistant 

Secretary for Small Business, Community Development & Housing Policy 

to consider the options that stakeholders have suggested for how CRA is 

implemented outlined in this report—such as revising the lending and 

service tests, expanding CRA to include all bank affiliates and nonbanks, 

expanding assessment areas, and issuing additional guidance—in the 

scope of the agency’s planned review of the CRA framework.

Agency Comments

We provided a draft of this report to Treasury, FRB, FDIC, and OCC for 

review and comment. In its written comments, reproduced in appendix V, 

Treasury stated that it concurred with our recommendation. FRB, FDIC, 

and OCC provided technical comments, which we incorporated as 

appropriate.
Letter

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to Treasury, FRB, FDIC, and 

OCC. In addition, the report will be available at no charge on the GAO 

website at http://www.gao.gov.

If you or your staff have any questions concerning this report, please 

contact me at (202) 512-8678 or cackleya@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this report. GAO staff who made major contributions to 

this report are listed in appendix VI.

Alicia Puente Cackley

Director, Financial Markets and

 Community Investment

Page 55 GAO-18-244 Community Reinvestment Act
Appendix I: Objectiv es, Scope, and 

Methodology

Page 56 GAO-18-244 Community Reinvestment Act

Appendix I: Objectives, 

Scope, and Methodology

This report examines (1) the availability of financial products and services 

to low- and moderate-income (LMI) consumers and their use of such 

financial products and services; (2) the extent to which Community 

Reinvestment Act (CRA) examinations evaluate financial institutions’

provision of retail banking services; small-dollar, nonmortgage consumer 

loans; and support for community development in LMI communities; and 

(3) stakeholder views on options that could further encourage basic 

banking services and loans in LMI communities.1

To address our objectives, we reviewed the CRA statute and 

implementing regulations and interviewed knowledgeable officials with the 

federal banking regulators who oversee CRA: the Board of Governors of 

the Federal Reserve (FRB), Federal Deposit Insurance Corporation 

(FDIC), and Office of the Comptroller of the Currency (OCC). We also 

reviewed the Department of the Treasury’s June 2017 report that 

describes its plan to conduct a review of the CRA framework.2

To assess the availability of financial products and services to LMI 

consumers and their use of such products and services, we used data 

from FDIC for 2016; the Federal Financial Institutions Examination 

Council (FFIEC) for 2014, 2015, and 2016; the National Conference of 

State Legislatures; the National Credit Union Administration (NCUA) for 

2016; and the U.S. Census Bureau (Census) for 2010, 2014, and 2016 to 

estimate how the availability of basic banking services offered by banks, 

credit unions, and alternative financial services (AFS) providers in LMI 

 

1Basic banking services are a subset of retail banking services, w hich is the term used in 

the CRA regulations and examination procedures. Basic banking services refers to those 

financial services needed to allow the average consumer to engage in necessary day-today banking activities. These services include deposit taking and simple transaction or 

savings account programs w ith low fees.

2U.S. Department of the Treasury, A Financial System That Creates Economic 

Opportunities: Banks and Credit Unions (Washington, D.C.: June 2017).
Appendix I: Objectives, Scope, and 

Methodology

communities compares to that in other communities.

Page 57 GAO-18-244 Community Reinvestment Act

3

(For technical 

details on our analysis of availability, see app. II.) We reviewed 

documentation on and conducted testing of the data we used and 

determined they were sufficiently reliable for the purpose of reporting on 

the availability of services offered by financial institutions and AFS 

providers. In addition, we analyzed data from FDIC’s National Survey of 

Unbanked and Underbanked Households for 2011, 2013, and 2015 to 

estimate the relationship between household income and various financial 

behaviors and characteristics related to the use and accessibility of basic 

banking services and small-dollar loans. (For technical details on our 

household analysis, see app. III.) We reviewed documentation on and 

conducted testing of the data we used and determined they were 

sufficiently reliable for the purpose of reporting on how consumers’ use of 

financial products and services vary with income.

To assess how the number of bank and credit union branches in the 

United States has changed nationwide in recent years, we examined data 

from FDIC on the number of bank branches in the 50 states and District 

of Columbia each year from 2005 to 2016 and from NCUA on the number 

of credit union branches each year from 2011 to 2016.4 To assess how 

the number of AFS providers in the United States has changed in recent 

years, we examined County Business Patterns data from Census for 

2005 to 2015 (the most recent data available). We used the number of 

establishments in North American Industry Classification System (NAICS) 

codes 522291 and 522390 to estimate the number of AFS 

establishments.5 We reviewed documentation on and conducted testing 

of the data we used and determined they were sufficiently reliable for the 

purpose of reporting on the numbers of bank and credit union branches 

and AFS providers.

 

3AFS providers include transaction providers such as check cashing outlets and money 

transmitters, and credit providers such as payday loan stores, automobile title lenders, 

and paw nshop lenders.

4NCUA data w ere not available prior to 2011.

5NAICS is the federal standard for classifying businesses by industry. NAICS code 

522291 includes establishments primarily engaged in making unsecured cash loans to 

consumers such as finance companies, personal credit institutions, loan companies, and 

student loan companies. NAICS code 522390 includes establishments primarily engaged 

in facilitating credit intermediation such as check cashing services, money order issuance 

services, loan servicing, travelers’ check issuance services, money transmission services, 

and payday lending services. While NAICS code 522390 appears to include all of the 

types of establishments that w e consider AFS providers for the purpose of this report, w e 

also included NAICS code 522291 to be consistent with other studies of AFS providers.
Appendix I: Objectives, Scope, and 

Methodology

To determine the extent to which CRA examinations evaluate financial 

institutions’ provision of (1) retail banking services, (2) small-dollar, 

nonmortgage consumer loans, and (3) support for community 

development in LMI communities, we reviewed the interagency CRA 

examination procedures for large, intermediate small, and small financial 

institutions. We identified those elements within the examination 

procedures that addressed our three topic areas and verified with each 

federal banking regulator that these elements were required to be 

included in CRA public disclosure performance evaluations (performance 

evaluations). We included these examination elements in data collection 

instruments that we used to evaluate the contents of a sample of CRA 

performance evaluations. To develop these data collection instruments, 

we first composed questions and information items corresponding to our 

examination elements that were organized into a series of spreadsheets. 

We then tested these instruments on a small set of selected reports. 

Based on this test, refinements were made to the instruments before we 

undertook our full analysis. We selected a representative random sample 

of 219 CRA performance evaluations stratified by examination type—

large, intermediate small, and small institution examinations. Our 

sampling frame was the list of all 1,273 CRA evaluations of large, 

intermediate small, and small institutions that were conducted in calendar 

year 2015 and published by July 19, 2016. We generated this list through 

searches on the federal banking regulators’ websites. The final sample 

included 59 large, 76 intermediate small, and 84 small institution 

examinations. (See table 5.)

Table 5: Population and Sample of 2015 Community Reinvestment Act Performance Evaluations, by Examination Type

Page 58 GAO-18-244 Community Reinvestment Act

Examination type Population Sample

Large institution 150 59

Intermediate small institution 363 76

Small institution 760 84

Total 1,273 219

Source: GAO analysis of data from the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. | GAO-18-244

Using our data collection instruments, we analyzed this sample of CRA 

performance evaluations to determine the extent to which they included 

evaluations of financial institutions’ provision of retail banking services, 

small-dollar, nonmortgage consumer loans, and support for community 

development in LMI communities. We interviewed representatives of five 

financial institutions selected because their 2015 CRA performance 

evaluations mentioned consumer loans to obtain their perspectives on 

how such loans were assessed as part of the CRA examination. We also 
Appendix I: Objectives, Scope, and 

Methodology

interviewed the CRA examiners who conducted the examinations for 

these five financial institutions to determine how the identified consumer 

loans were evaluated under CRA. Further, we reviewed CRA examiner 

training materials from each of the federal banking regulators to 

determine whether they included our three topic areas.

Because we followed a probability procedure based on random 

selections, our sample is only one of a large number of samples that we 

might have drawn. Since each sample could have provided different 

estimates, we express our confidence in the precision of our particular 

sample’s results at a 95 percent confidence level. This is the interval that 

would contain the actual population value for 95 percent of the samples 

we could have drawn. As a result, we are 95 percent confident that each 

of the confidence intervals in this report will include the true values in the 

study population. The margin of error for all population estimates 

presented in each examination category (large, intermediate small, and 

small) is less than +/-11 percent at a 95 percent confidence level unless 

otherwise specified. Based on these procedures, we generated 

percentage estimates of the performance evaluations that included the 

examination elements related to our three topic areas.

To identify stakeholder views on options that could further encourage 

financial institutions to provide basic banking services and small-dollar, 

nonmortgage consumer loans to LMI consumers, we undertook a series 

of interconnected data collection steps. First, to identify an initial set of 

options, we conducted a literature search of databases that included 

general academic literature to identify publications from 2010 through 

2015 that addressed our topics. The literature search results identified 

scholarly studies, policy briefs, news articles, and other sources that 

discussed options that could enhance financial inclusion. At the same 

time, and to supplement the literature review, we also held a series of 

interviews using questions that differed depending on the type of 

institution with 16 stakeholders to obtain their views on options that could 

further encourage financial institutions to provide basic banking services 

and small-dollar loans. These stakeholders included government 

agencies, industry associations, think tanks, and consumer advocacy 

organizations that were selected based on their knowledge on these 

matters. Second, we grouped the options we identified from both the 

Page 59 GAO-18-244 Community Reinvestment Act
Appendix I: Objectives, Scope, and 

Methodology

literature review and interviews into a consolidated set of options for 

analysis.

Page 60 GAO-18-244 Community Reinvestment Act

6

Third, to obtain initial information on the relative importance of these 

options, we administered an email survey from November 2016 through 

December 2016 to a non-generalizable sample of 66 individuals and 

organizations that were among the original sources of the options we 

identified and who agreed to participate in our survey. This sample 

included academics, advocacy and service groups, financial institutions or 

industry groups, government agencies, and think tanks. We also reached 

out to additional financial institutions to ensure representation across 

institution sizes in our survey.7 We received survey responses from 31 of 

the 66 survey recipients. Despite the limitations inherent in this relatively 

low response rate, we determined that the number of responses we got 

were sufficient for us to make a general assessment about the relative 

importance of the options we identified. We conducted an analysis of our 

survey results to identify those options which were identified by 

respondents as most important, or key. Fourth, in January 2017 we held a 

series of five discussion groups with those survey respondents who were 

willing to participate to obtain their views on options that could encourage 

financial institutions to provide accessible and affordable basic banking 

services and small-dollar nonmortgage consumer loans in LMI 

communities. Although the views of these stakeholders were not 

necessarily representative of all stakeholders, their views offered 

important perspectives. To structure these discussion groups, we used 

our survey responses to identify and focus on each option from the 

survey identified as important.

We conducted this performance audit from August 2015 through February

2018 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

 

6We used an affinity mapping exercise to group the options for analysis.

7To ensure that our survey questions w ere clear and logical and that respondents could 

answ er the questions w ithout undue burden, w e pretested our draft questionnaire w ith tw o 

individuals w ho w ere part of our sample. We then made changes to the questionnaire 

based on the pretest results.
Appendix II: Analysis of Av ailability of 

Financial Products and Serv ices to Low- and 

Moderate-Income Communities

Page 61 GAO-18-244 Community Reinvestment Act

Appendix II: Analysis of 

Availability of Financial 

Products and Services to 

Low- and Moderate-Income 

Communities

Data

We conducted an econometric analysis to assess how the availability of 

banking services to low- and moderate-income communities compares to 

that for other communities. We used data from the following sources:

· Federal Deposit Insurance Corporation (FDIC) for 2016;

· Federal Financial Institutions Examination Council (FFIEC) for 2014, 

2015, and 2016;

· National Conference of State Legislatures as of September 2016;

· National Credit Union Administration (NCUA) for 2016; and

· Census Bureau (Census) for 2010, 2014, and 2016.

We defined communities as Census tracts and we used data from FFIEC 

to identify low-, moderate-, middle-, and upper-income tracts. FFIEC 

determines a tract’s income group by comparing median family income in 

the tract to median family income in the metropolitan area or 

nonmetropolitan (rural) area of the state containing the tract (see table 6). 

This approach to identifying low-, moderate-, middle-, and upper-income 

tracts accounts for differences in purchasing power across metropolitan 

areas and rural areas in different states.

Table 6: Census Tract Income Group Definitions (percent)

Census tract income Median family income in the Census tract as a percentage of median family income in the 

metropolitan area or rural area of the state containing the tract

Low Up to 49.9

Moderate 50 to 79.9
Appendix II: Analysis of Av ailability of 

Financial Products and Serv ices to Low- and 

Moderate-Income Communities

Page 62 GAO-18-244 Community Reinvestment Act

Census tract income Median family income in the Census tract as a percentage of median family income in the 

metropolitan area or rural area of the state containing the tract

Middle 80 to 119.9

Upper 120 or more

Source: GAO analysis of data from the Federal Financial Institutions Examination Council. | GAO-18-244

In 2016, there were 73,057 Census tracts—60,903 in metropolitan areas 

and 12,154 in rural areas (see table 7). About 44 percent of all tracts were 

middle income, about 29 percent were low and moderate income, and 

about 26 percent were upper income. The remaining tracts were not 

assigned an income group, generally for reasons of confidentiality. 

Metropolitan areas were more likely to contain low- and moderate-income 

tracts than state rural areas. Overall, about 6 percent of the population 

lived in low-income tracts in 2016 and about 21 percent of the population 

lived in moderate-income tracts.

Table 7: Numbers of Census Tracts and Percentage of Population in Census Tracts, by Income and Location Type, 2016

Census 

tract 

income

Number of Census tracts in: Percentage of population in Census tracts in:

metropolitan 

areas

rural areas all areas metropolitan 

areas (percent)

rural areas 

(percent)

all areas 

(percent)

Low 5,338 170 5,508 5.9 0.2 6.1

Moderate 14,107 1,855 15,962 18.9 2.2 21.1

Middle 23,924 7,964 31,888 34.8 10.0 44.8

Upper 16,716 1,979 18,695 25.2 2.7 27.8

Unknow n 818 186 1,004 0.2 <0.1 0.3

Total 60,903 12,154 73,057 85.0 15.0 100

Source: GAO analysis of data from the Federal Financial Institutions Examination Council. | GAO-18-244

Note: Totals may sum to more than 100 percent due to rounding.

We used data on tracts with at least 100 people for which demographic 

data and indicators of residential population density and land use were 

available for our analysis. Table 8 shows characteristics of tracts by 

income for metropolitan areas and rural areas for 2016.
Appendix II: Analysis of Av ailability of 

Financial Products and Serv ices to Low- and 

Moderate-Income Communities

Table 8: Characteristics of Census Tracts, by Income and Location Type, 2016

Page 63 GAO-18-244 Community Reinvestment Act

Census tracts in metropolitan areas that are Census tracts in rural areas that are

low

income

moderate 

income

middle 

income

upper 

income

low

income

moderate 

income

middle 

income

upper 

income

Average 

percentage 

of the 

population 

that is 

(percent):

White 22.7 43.4 68.8 75.5 41.6 65.3 84.1 84.9

Hispanic 28.8 26.7 13.6 9.6 14.9 11.1 6.1 6.0

Black 41.2 22.2 10.1 5.7 28.8 15.6 6.1 5.8

Asian 4.1 4.4 4.6 6.6 1.0 0.7 0.7 0.9

Other race/

ethnicity

3.1 3.3 2.9 2.5 13.7 7.4 3.1 2.4

Female 51.2 51.0 51.1 51.1 51.4 50.6 50.0 50.0

Male 48.8 49.0 48.9 48.9 48.6 49.4 50.0 50.0

Age 17 & 

under

27.0 24.8 22.7 23.0 25.2 24.4 22.8 22.0

Age 18-24 14.6 11.7 9.3 8.0 19.2 10.1 8.3 8.5

Age 25-39 21.8 22.1 20.2 18.1 17.4 17.8 16.8 16.6

Age 40-49 12.2 13.0 14.1 15.5 11.1 12.8 13.5 13.9

Age 50-64 15.0 16.8 19.6 21.5 15.9 19.6 21.6 22.4

Age 65 & over 9.3 11.7 14.1 14.0 11.3 15.3 17.0 16.5

Average 

percentage 

of the 

population 

age 25 and 

over that 

has 

(percent):

No high 

school 

diploma

32.0 23.6 13.0 6.1 31.4 24.7 17.0 12.2

High school 

diploma

32.0 32.3 30.4 19.2 33.6 37.7 38.3 32.1

Some college 23.2 27.0 30.2 27.0 23.6 25.8 28.4 29.6

Bachelor’s 

degree or 

more

12.9 17.1 26.4 47.8 11.4 11.8 16.3 26.1

Average 

percentage 

of the 

population 

age 16 and 

over that is 

(percent):

Employed 49.3 57.3 61.7 64.3 41.3 48.5 55.8 59.6

Unemployed 9.2 6.8 4.9 3.6 8.5 6.4 4.5 3.7

Not in labor 

force

41.5 35.9 33.4 32.0 50.2 45.2 39.7 36.7

Average 

percentage 

of homes 

that are 

(percent):

Ow ner 

occupied

30.5 51.1 70.2 78.7 45.1 64.2 75.1 78.2

Rented/not 

ow ner 

occupied

69.5 48.9 29.8 21.3 54.9 35.8 24.9 21.8

Number of 

Census 

Rural 13 582 1,902 335 33 662 3,646 592

Mixed 349 2,356 8,022 5,957 73 880 3,786 1,276
Appendix II: Analysis of Av ailability of 

Financial Products and Serv ices to Low- and 

Moderate-Income Communities

Page 64 GAO-18-244 Community Reinvestment Act

Census tracts in metropolitan areas that are Census tracts in rural areas that are

low

income

moderate 

income

middle 

income

upper 

income

low

income

moderate 

income

middle 

income

upper 

income

tracts that 

are:

Urban 4,968 11,166 13,992 10,415 64 313 530 107

Source: GAO analysis of data from the Federal Financial Institutions Examination Council. | GAO-18-244

Note: Census tracts are those in our analysis sample, which includes only tracts with at least 100 

people for which demographic data and indicators of residential population density and land use were 

available.

Methodology

To compare the availability of banking services to low- and moderateincome communities to that for other communities, we estimated the 

parameters of econometric models with the following basic specification:

where c denotes the community; availabilityc is an indicator of the 

availability of banking services to community c; low, moderate, and upper 

are indicator variables equal to 1 if community c is low-income, moderateincome, or upper-income, respectively, and equal to 0 otherwise (so the 

omitted income group is middle); and Xc is a vector of other 

characteristics of community c. These other characteristics include 

indicators of population density and land use; the distribution of people 

with different demographic characteristics, such as age, race/ethnicity, 

gender, educational attainment, and labor force status; and the 

distribution of homes that are owner occupied or not. They also include 

metropolitan area and state rural area fixed effects to control for features 

that may vary across those areas but not across tracts within an area. 

The parameters of interest are b and g. The parameter b measures the 

availability of banking services to low-income communities relative to 

middle-income communities, and the parameter g measures the 

availability to moderate-income communities relative to middle-income 

communities.

We used three different approaches to estimating how the availability of 

banking services to low- and moderate-income communities compares to 

that for middle-income communities. As we explain below, the 

approaches differed in how we measured availability of banking services 

and in our geographic unit of analysis. However, all of our measures of 
Appendix II: Analysis of Av ailability of 

Financial Products and Serv ices to Low- and 

Moderate-Income Communities

availability of banking services are numbers that take only nonnegative 

integer values. In addition, all of our specifications include fixed effects for 

metropolitan areas and state rural areas. To accommodate these 

features, we used fixed-effects Poisson regressions to estimate the 

parameters of the econometric models. We calculated robust standard

errors to mitigate the effects of overdispersion in our measures of 

availability.

Analysis of Bank and Credit Union Branches Near Tracts

Page 65 GAO-18-244 Community Reinvestment Act

For our first approach, we used Census tracts as our unit of analysis and 

measured availability of banking services to people in a tract by counting 

the number of bank and credit union branches (hereafter, branches) 

within 2, 5, 10, and 25 miles of the tract. We identified the numbers of 

branches within these distances of each tract by geocoding the 

addresses of bank and credit union branches. Table 9 shows the average 

number of branches within 2, 5, 10, and 25 miles of tracts in our analysis 

sample by income in 2016.
Appendix II: Analysis of Av ailability of 

Financial Products and Serv ices to Low- and 

Moderate-Income Communities

Table 9: Numbers of Bank and Credit Union Branches Nearby Census Tracts w ith Different Income Levels, by Location Type, 

Page 66 GAO-18-244 Community Reinvestment Act

2016

Number of bank and credit 

union branches w ithin the 

specified miles of

2 miles 5 miles 10 miles 25 miles

Mean Min Max Mean Min Max Mean Min Max Mean Min Max

Census 

tracts in 

metropolitan

areas that 

are

Low income 27 0 463 130 0 1,046 375 0 1,966 1,050 0 4,245

Moderate 

income

18 0 471 91 0 1,051 279 0 1,964 854 0 4,253

Middle 

income

13 0 482 62 0 1,066 193 0 1,970 672 0 4,253

Upper 

income

18 0 487 82 0 1,056 243 0 1,964 879 0 4,253

Census 

tracts in 

rural areas 

that are

Low income 6 0 25 11 0 37 15 0 49 49 51

Moderate 

income

4 0 25 7 0 46 10 0 62 62 48

Middle 

income

2 0 29 5 0 49 10 0 118 118 57

Upper 

income

2 0 29 6 0 42 15 0 115 115 75

Source: GAO analysis of data from the Census Bureau, the Federal Deposit Insurance Corporation, the Federal Financial Institutions Examination Council, and the National Credit Union Administration. |

GAO-18-244

Note: Census tracts are those in our analysis sample, which includes only tracts with at least 100 

people for which demographic data and indicators of residential population density and land use were 

available.

Table 10 shows the numbers of low-, moderate-, middle-, and upperincome tracts in our analysis sample with no branches within 2, 5, 10, and 

25 miles in 2016. About 2 percent of low-income tracts, 10 percent of 

moderate-income tracts, 22 percent of middle-income tracts, and 16 

percent of upper-income tracts had no branches within 2 miles. In rural 

areas, about 10 percent of low-income tracts, 10 percent of moderateincome tracts, 7 percent of middle-income tracts, and 6 percent of upperincome tracts had no branches within 10 miles.
Appendix II: Analysis of Av ailability of 

Financial Products and Serv ices to Low- and 

Moderate-Income Communities

Table 10: Number of Census Tracts w ith No Bank and Credit Union Branches Nearby, by Income Level and Location Type, 

Page 67 GAO-18-244 Community Reinvestment Act

2016

Metropolitan areas Rural areas 

Number of Census tracts with no branches 

within

Total tracts Number of Census tracts w ith no branches 

within Total 

tracts

2 miles 5 miles 10 miles 25 miles 2 miles 5 miles 10 miles 25 miles

Low

income

89 24 13 2 5,330 52 34 18 6 170

Moderate 

income

1,403 499 119 22 14,104 934 509 179 37 1,855

Middle 

income

5,352 1,594 255 25 23,916 5,280 2,624 587 62 7,962

Upper 

income

2,707 457 72 7 16,707 1,303 572 124 14 1,975

Source: GAO analysis of data from the Census Bureau, the Federal Deposit Insurance Corporation, the Federal Financial Institutions Examination Council, and the National Credit Union Administration. |

GAO-18-244

Note: Census tracts are those in our analysis sample, which includes only tracts with at least 100 

people for which demographic data and indicators of residential population density and land use were 

available.

Analysis of Large Bank Community Reinvestment Act Assessment 

Areas Containing Tracts

For the second approach, we measured the availability of banking 

services using the number of banks with assets of about $1.2 billion or 

more (hereafter, large banks) that included the tract in its Community 

Reinvestment Act (CRA) assessment area. A bank’s assessment area 

includes the geographies where it has its main office, its branches, and its 

deposit-taking automated teller machines, as well as the surrounding 

geographies in which the bank has originated or purchased a substantial 

portion of its loans. In 2015, low-income tracts in metropolitan areas were 

contained in 24 large bank assessment areas on average and moderateincome tracts were contained in 22 (see table 11). Middle- and upperincome tracts in metropolitan areas were contained in 19 and 24 

assessment areas, on average. Tracts in rural areas were contained in 

fewer assessment areas—low-, moderate-, and middle-income tracts 

were contained in 4 on average and upper-income tracts were contained 

in 5.
Appendix II: Analysis of Av ailability of 

Financial Products and Serv ices to Low- and 

Moderate-Income Communities

Table 11: Number of Large Bank Community Reinvestment Act Assessment Areas Containing Census Tracts, by Income and 

Page 68 GAO-18-244 Community Reinvestment Act

Location Type, 2015

Number of large bank assessment areas 

containing Census tracts in metropolitan areas 

that are:

Number of large bank assessment areas containing 

Census tracts in rural areas that are:

low

income

moderate 

income 

middle 

income

upper 

income 

low income moderate 

income

middle 

income

upper 

income

Mean 24 22 19 24 4 4 4 5

Minimum 0 2 0 0 0 0 0 0

Maximum 62 62 62 62 10 11 12 12

Source: GAO analysis of data from the Federal Financial Institutions Examination Council. | GAO-18-244

Analysis of Alternative Financial Services Establishments in 

Counties

For the third approach, we used counties as the unit of analysis and 

measured the availability of banking services using numbers of alternative 

financial services (AFS) establishments in counties. Table 12 shows the 

average numbers of bank and credit union establishments and AFS 

establishments in counties in 2014. For this approach, we aggregated 

tract-level information up to the county level so that the variables low, 

moderate, and upper in our econometric model measure the share of 

county population in low-, moderate-, and upper-income tracts, 

respectively. It follows that the parameters of interest, b and g, are 

estimates of the relative change in the number of establishments 

associated with a 1 percentage point increase in the share of county 

population that lives in low- and moderate-income communities, 

respectively.

Table 12: Number of Alternative Financial Services Establishments per 10,000 People in Counties, by Location Type, 2014

Numbers of alternative financial services establishments per 10,000 people in counties in:

metropolitan areas rural areas

Mean 20 3

Minimum 0 0

Maximum 858 48

Source: GAO analysis of data from the Census Bureau and the Federal Financial Institutions Examination Council. | GAO-18-244

Notes: Numbers of establishments are from the County Business Patterns. Alternative financial 

services establishments are those with North American Industry Classification System codes 522291 

and 522390.

Each of these three approaches sheds light on different aspects of the 

availability of banking services to a community. In our first approach, the 
Appendix II: Analysis of Av ailability of 

Financial Products and Serv ices to Low- and 

Moderate-Income Communities

measures of availability—numbers of bank and credit union branches 

within 2, 5, 10, and 25 miles of a tract—reflect a community’s physical 

proximity to branches of banks and credit unions of all sizes. The 

measure of availability we used in our second measure—numbers of 

large bank assessment areas containing a tract—allows large banks to 

self-identify the geographic area they generally serve and thus may more 

accurately measure availability of banking services in a community than 

the first measure. On the other hand, this measure is only available for 

banks with assets of about $1 billion or more, so it understates the 

availability of banking services in a community to the extent that services 

provided by smaller banks or credit unions are also available. Finally, our 

third approach—estimating the relationship between the number of AFS 

establishments in a county and the distribution of county population 

across low-, moderate-, middle-, and upper-income communities—sheds 

light on the availability of banking services provided by nonbanks. 

However, this approach may overstate the availability if establishments 

are not distributed uniformly across counties and if counties are large 

relative to the tracts they contain.

The descriptive statistics in the tables above suggest that metropolitan 

areas and state rural areas may be different, so we obtain estimates 

using the full sample of tracts and counties, using only tracts and counties 

in metropolitan areas, and using only tracts and counties in rural areas of 

states. For our analysis of bank and credit union branches near tracts, we 

also obtain estimates using only tracts in metropolitan areas of different 

sizes and in each of the largest 25 metropolitan areas.

Caveats and Limitations

Page 69 GAO-18-244 Community Reinvestment Act

Our analysis has limitations and our results should be interpreted with

caution. For example, our analysis does not establish causal relationships 

between community income and availability of basic banking services. In 

addition, our results may not generalize to other time periods, and they 

may not represent the experience of any one community in particular. 

Furthermore, our estimates of the relationship between availability and 

income may also reflect factors other than income. We controlled for 

several characteristics that may be associated with availability and also 

correlated with income, such as race/ethnicity, educational attainment, 

and the homeownership rate. However, we may not have controlled for all 

possible characteristics that are associated with availability. If a 

characteristic we omitted is associated with income, then our results may 

reflect the relationship between availability and this omitted factor instead 
Appendix II: Analysis of Av ailability of 

Financial Products and Serv ices to Low- and 

Moderate-Income Communities

of, or in addition to, the relationship between availability and income. 

There may be alternative measures of availability other than the ones we 

used, and these measures may produce different results. Finally, 

geographic proximity is only one aspect of the availability of basic banking 

services to a community. Other aspects of availability may also play a role 

in whether or not people in a community have access to banking services, 

and some people in a community may not have access to banking 

services even if a financial institution is located nearby.

Results

Page 70 GAO-18-244 Community Reinvestment Act

Analysis of Bank and Credit Union Branches Near Tracts

Our analysis suggests that low-income communities have more bank and 

credit union branches nearby than middle-income communities in some 

types of locations but the same or less in others. In 2016, the number of 

bank and credit union branches within 2 miles of low-income tracts was 

greater on average than the number within 2 miles of middle-income 

tracts in metropolitan areas with 250,000 to 499,999 people, in 

metropolitan areas with 500,000 to 999,999 people, and in metropolitan 

areas with 1 million people or more, all else—including the demographic 

characteristics of the tract, its population density and land use category, 

and the metropolitan area where it was located—being equal (see table 

13). The difference in the number of branches within 2 miles of low- and 

middle-income tracts was greater in larger metropolitan areas—about 11 

percent greater in metropolitan areas with 250,000 to 499,999 people, 

about 22 percent greater in metropolitan areas with 500,000 to 999,999 

people, and about 31 percent in metropolitan areas 1 million people or 

more. However, the number of branches within 2 miles of low-income 

tracts was not statistically significantly different from the number within 2 

miles of middle-income tracts in metropolitan areas with 100,000 to 

249,999 people, and it was about 35 percent less in metropolitan areas 

with 99,999 people or fewer. The number of branches within 2 miles of 

low-income tracts was not statistically significantly different from the 

number within 2 miles of middle-income tracts in rural areas of states. 

Finally, for each of the largest 25 metropolitan areas, we generally found 

that the number of branches within 2 miles of low-income tracts was 

either greater than or not significantly different from the number within 2 

miles of middle-income tracts.
Appendix II: Analysis of Av ailability of 

Financial Products and Serv ices to Low- and 

Moderate-Income Communities

Table 13: Ratio of Bank and Credit Union Branches Nearby Low, Moderate-, and Upper-Income Census Tracts to Branches 

Page 71 GAO-18-244 Community Reinvestment Act

Nearby Similar Middle-Income Tracts, by Location Type, 2016

Estimated ratio of the number of bank and credit union branches w ithin 2 miles of low -, moderate-, and upperincome Census tracts to the number within 2 miles of similar middle-income tracts in the same area, in:

all areas all 

metropolitan 

areas

metropolitan areas with: rural areas

1 million 

people or 

more

500,000 to 

999,999 

people

250,000 to 

499,999 

people

100, 000 to 

249,999 

people

99,999 

people or 

fewer

Ratio for 

low -income 

tracts

1.28a1.28a1.31a1.22a1.11b1.09 0.65b0.90

(0.03) (0.03) (0.03) (0.06) (0.06) (0.06) (0.14) (0.07)

Ratio for 

moderateincome tracts

1.10a1.10a1.10a1.10a1.10a1.07

b

1.04 1.03

(0.03) (0.03) (0.03) (0.04) (0.04) (0.04) (0.09) (0.04)

Ratio for 

upperincome tracts

1.01 1.01 1.00 0.98 1.08b 1.07c0.86 1.10b

(0.04) (0.04) (0.04) (0.05) (0.03) (0.04) (0.11) (0.05)

Number of 

tracts

72,019 60,057 39,004 8,381 6,280 5,798 594 11,962

Number of 

areas

449 402 73 54 80 166 29 47

Log 

likelihood

-334,438 -309,928 -233,870 -32,418 -21,371 -17,452 -1,727 -21,749

Source: GAO analysis of data from the Census Bureau, the Federal Deposit Insurance Corporation, the Federal Financial Institutions Examination Council, and the National Credit Union Administration. |

GAO-18-244

Notes: The table shows the exponentiated coefficient estimates from Poisson regressions of the 

number of bank and credit union branches within 2 miles of Censu s tracts on indicators of tract 

income. The regressions also controlled for tract population density and land use category; the 

demographic mix of tract population by age, race/ethnicity, gender, educational attainment, and labor 

force status; the mix of homes in the tract by homeownership status; and the metropolitan area or 

rural area of the state where the tract is located. The omitted income group is middle income. All else 

being equal, the estimated average ratio of the number of branches nearby low-, moderate-, and 

upper-income tracts to the number nearby middle-income tracts is approximately equal to the 

reported exponentiated coefficient estimate. Robust standard errors are in parentheses.

a

Statistically significant at the 1 percent level.

b

Statistically significant at the 5 percent level.

c

Statistically significant at the 10 percent level.

Our analysis also suggests that moderate-income communities also have 

more bank and credit union branches nearby than middle-income 

communities in some areas and the same or less in others. In 2016, the 

number of branches within 2 miles of moderate-income tracts was about 

7 to 10 percent greater than the number within 2 miles of middle-income 

tracts in metropolitan areas with 100,000 people or more. However, in 

metropolitan areas with 99,999 people or fewer and in rural areas of 

states, the number of branches within 2 miles of moderate-income tracts 

was not statistically significantly different from the number within 2 miles 
Appendix II: Analysis of Av ailability of 

Financial Products and Serv ices to Low- and 

Moderate-Income Communities

of middle-income tracts. Finally, for each of the 25 largest metropolitan 

areas, we found that the number of branches within 2 miles of moderateincome tracts was greater than or not statistically different from the 

number within 2 miles of moderate-income tracts for most of the 25 

largest metropolitan areas, but was less than the number within 2 miles of 

middle-income tracts in a few (see table 14).

Table 14: Ratio of Bank and Credit Union Branches Nearby Low-, Moderate-, and Upper-Income Census Tracts to Branches 

Page 72 GAO-18-244 Community Reinvestment Act

Nearby Similar Middle-Income Tracts, by Metropolitan Area, 2016

Metropolitan area Estimated ratio of the number of bank and credit union 

branches within 2 miles of a Census tract to the number 

within 2 miles of similar middle-income tracts, for tracts in 

metropolitan area that are:

Number of 

Census tracts in 

metropolitan 

area

Log 

likelihood

low income moderate income upper income

1. New York-New ark-Jersey 

City, NY-NJ-PA

1.085 1.067 1.039 4,604 -59,979.1

(0.069) (0.045) (0.044)

2. Los Angeles-Long BeachAnaheim, CA1.209a0.944c1.110a2,887 -16,134.6

(0.073) (0.032) (0.036)

3. Chicago-Naperville-Elgin, ILIN-WI1.184c1.025 1.097c2,201 -13,553.4

(0.118) (0.057) (0.061)

4. Dallas-Fort Worth-Arlington, 

TX

1.304a1.007 0.859a1,320 -5,311.9

(0.130) (0.066) (0.049)

5. Houston-The WoodlandsSugar Land, TX1.310b1.090 0.880c1,062 -4,550.86

(0.144) (0.087) (0.059)

6. Washington-ArlingtonAlexandria, DC-VA-MD-WV1.204 1.179c0.974 1,346 -10,166.2

(0.195) (0.113) (0.083)

7. Philadelphia-CamdenWilmington, PA-NJ-DE-MD1.020 0.931 1.324a1,457 -8,635.85

(0.116) (0.062) (0.078)

8. Miami-Fort Lauderdale-West 

Palm Beach, FL

1.150 1.057 0.984 1,190 -6,621.47

(0.126) (0.058) (0.054)

9. Atlanta-Sandy SpringsRosw ell, GA1.770a1.160c1.018 945 -3,264.74

(0.227) (0.098) (0.090)

10. Boston-CambridgeNew ton, MA-NH1.217 1.051 1.299a988 -6,434.16

(0.149) (0.081) (0.082)

11. San Francisco-OaklandHayw ard, CA1.165 0.979 1.118c969 -6,693.24

(0.118) (0.068) (0.074)

12. Phoenix-Mesa-Scottsdale, 

AZ

1.114 1.027 0.932 980 -3,471.33

(0.114) (0.060) (0.060)

13. Riverside-San Bernardino- 1.024 0.948 1.179b817 -2,414.15
Appendix II: Analysis of Av ailability of 

Financial Products and Serv ices to Low- and 

Moderate-Income Communities

Page 73 GAO-18-244 Community Reinvestment Act

Metropolitan area Estimated ratio of the number of bank and credit union 

branches within 2 miles of a Census tract to the number 

within 2 miles of similar middle-income tracts, for tracts in 

metropolitan area that are:

Number of 

Census tracts in 

metropolitan 

area

Log 

likelihood

low income moderate income upper income

Ontario, CA (0.137) (0.067) (0.094)

14. Detroit-Warren-Dearborn, 

MI

1.131 0.974 1.043 1,282 -4,956.02

(0.107) (0.056) (0.047)

15. Seattle-Tacoma-Bellevue, 

WA

1.294c1.146c1.202a717 -3,373.95

(0.176) (0.087) (0.082)

16. Minneapolis-St. PaulBloomington, MN-WI1.025 0.823a1.106 785 -2,665.07

(0.118) (0.053) (0.085)

17. San Diego-Carlsbad, CA 1.337a1.099 0.940 622 -2,516.61

(0.124) (0.070) (0.066)

18. Tampa-St. PetersburgClearw ater, FL1.184 0.959 0.941 733 -3,234.53

(0.181) (0.077) (0.089)

19. Denver-Aurora-Lakew ood, 

CO

0.929 0.836b0.986 614 -2,495.46

(0.117) (0.071) (0.072)

20. St. Louis, MO-IL 1.062 0.935 1.002 613 -2,118.88

(0.146) (0.072) (0.078)

21. Baltimore-ColumbiaTow son, MD1.349a1.019 0.880 671 -2,770.95

(0.139) (0.066) (0.072)

22. Charlotte-ConcordGastonia, NC-SC0.899 0.858 0.763b534 -1,636.72

(0.155) (0.096) (0.100)

23. Orlando-KissimmeeSanford, FL1.451 1.253b1.043 388 -1,386.13

(0.344) (0.129) (0.086)

24. San Antonio-New

Braunfels, TX

1.451b1.334a0.976 453 -1,547.17

(0.212) (0.132) (0.098)

25. Portland-VancouverHillsboro, OR-WA1.057 1.049 1.008 488 -1,934.11

(0.146) (0.072) (0.074)

Source: GAO analysis of data from the Census Bureau, the Federal Deposit Insurance Corporation, the Federal Financial Institutions Examination Council, and the National Credit Union Administration. |

GAO-18-244

Notes: The table shows the exponentiated coefficient estimates from Poisson regressions of the 

number of bank and credit union branches within 2 miles of Census tracts on indicators of tract 

income. The regressions also controlled for tract population density and land use category; the 

demographic mix of tract population by age, race/ethnicity, gender, educational attainment, and labor 

force status; the mix of homes in the tract by homeownership status; and the metropolitan area or 

rural area of the state where the tract is located. The omitted income group is middle income. All else 

being equal, the estimated average ratio of the number of branches nearby low-, moderate-, and 

upper-income tracts to the number nearby middle-income tracts is approximately equal to the 

reported exponentiated coefficient estimate. Robust standard errors are in parentheses.

a

Statistically significant at the 1 percent level.

b

Statistically significant at the 5 percent level.
Appendix II: Analysis of Av ailability of 

Financial Products and Serv ices to Low- and 

Moderate-Income Communities

c

Statistically significant at the 10 percent level.

We also found that the numbers of branches within 5 miles of low- and 

moderate-income tracts were also greater than the numbers within 5 

miles of middle-income tracts for metropolitan areas with 100,000 to 

249,999 people, metropolitan areas with 250,000 to 499,999 people, 

metropolitan areas with 500,000 to 999,999 people, and metropolitan 

areas with 1 million people or more, and also for rural areas of states. For 

metropolitan areas with 99,999 people or fewer, the numbers of branches 

nearby low- and moderate-income tracts were not statistically significantly 

different from the numbers nearby middle-income tracts. Finally, we found 

that the numbers of branches within 10 miles of low- and moderateincome tracts were greater than the numbers within 10 miles of middleincome tracts in rural areas and in metropolitan areas with at 100,000 to 

999,999 people, but not in metropolitan areas with 99,999 people or fewer 

or in metropolitan areas with 1 million or more people. Altogether, these 

patterns suggest that banks and credit unions are more available to lowand moderate-income communities than they are to similar middleincome communities in some areas, but are equally or less available in 

others.

Analysis of Large Bank Community Reinvestment Act Assessment 

Page 74 GAO-18-244 Community Reinvestment Act

Areas Containing Tracts

Our analysis of large bank assessment areas suggests that the number of 

large bank assessment areas containing low- and moderate-income 

tracts in metropolitan areas is no greater than the number containing 

similar middle-income tracts in the same area (see table 15). In 2015, 

low-income tracts in metropolitan areas were contained in about the same 

number of large bank assessment areas as middle-income tracts in the 

same areas, while moderate-income tracts are contained in about 1 

percent fewer. Our estimates also suggest, however, that the number of 

large bank assessment areas containing low- and moderate-income 

tracts in rural areas is at least as great as the number containing middleincome tracts in the same area. Low-income tracts in rural areas were 

contained in about 1.1 times as many large bank assessment areas as 

similar middle-income tracts in the same rural area. Altogether, these 

estimates suggest that banking services provided by large banks are no 

more available to low- and moderate-income communities in metropolitan 

areas than they are to similar middle-income communities in the same 

area, and possibly less, while banking services provided by large banks 

are at least as available to low- and moderate-income communities in 

rural areas of states as they are to similar middle-income communities in 

the same area, and possibly more.
Appendix II: Analysis of Av ailability of 

Financial Products and Serv ices to Low- and 

Moderate-Income Communities

Table 15: Ratio of Number of Large Bank Community Reinvestment Act Assessment Areas Containing Low -, Moderate-, and 

Page 75 GAO-18-244 Community Reinvestment Act

Upper-Income Census Tracts to Number Containing Similar Middle-Income Tracts, 2015

Estimated ratio of the number of large bank assessment areas containing low-, 

moderate-, and upper-income Census tracts to the number containing similar middleincome tracts in:

all areas all metropolitan areas rural areas

Ratio for low -income tracts 0.991 0.987 1.131a

(0.017) (0.016) (0.054)

Ratio for moderate-income tracts 0.988b0.988b1.029

(0.005) (0.004) (0.021)

Ratio for upper-income tracts 1.010 1.006 1.064a

(0.011) (0.011) (0.028)

Number of tracts 72,019 60,045 11,974

Number of areas 448 401 47

Log likelihood -181,546 -157,620 -23,413

Source: GAO analysis of data from the Federal Financial Institutions Examination Council. | GAO-18-244

Notes: The table shows the exponentiated coefficient estimates from Poisson regressions of the 

number of large bank assessment areas containing Census tracts on indicators of tract income. The 

regressions also controlled for tract population density and land use category; the demographic mix of 

tract population by age, race/ethnicity, gender, educational attainment,and labor force status; the mix 

of homes in the tract by homeownership status; and the metropolitan area or rural area of the state 

where the tract is located. The omitted income group is middle income. All else being equal, the 

estimated average ratio of the number of large bank assessment areas containing low-, moderate-, 

and upper-income tracts to the number containing middle-income tracts is approximately equal to the 

reported exponentiated coefficient estimate. Robust standard errors are in parentheses.

a

Statistically significant at the 5 percent level.

b

Statistically significant at the 1 percent level.

Analysis of Alternative Financial Services Establishments in 

Counties

Our analysis suggests that small changes in the share of people in 

moderate-income tracts are not associated with statistically significant 

changes in the number of AFS establishments (see table 16). However, a 

small increase in the share of people in low-income tracts is associated 

with a reduction in the number of AFS establishments in the county. 

Specifically, a 1 percentage point increase in the share of people in lowincome tracts is associated with about a 1 percent reduction in the 

number of AFS establishments in a county, all else being equal. 

Estimated changes in the numbers of AFS establishments in specific 

groups of counties—those that do not prohibit payday lending, those in 

metropolitan areas, and those in state rural area—associated with similar 

changes in the share of people in low- and moderate-income tracts are 

similar. The one exception is for counties in states that prohibit payday 
Appendix II: Analysis of Av ailability of 

Financial Products and Serv ices to Low- and 

Moderate-Income Communities

lending. For counties in these states, the number of AFS establishments 

appears to be unrelated to the share of county population in low- and 

moderate-income tracts.

Table 16: Changes in Alternative Financial Services Establishments in Counties Associated w ith Changes in Population in 

Page 76 GAO-18-244 Community Reinvestment Act

Low-, Moderate-, and Upper-Income Census Tracts, 2014

Estimated ratio of the number of alternative financial services es tablishments in a county to the 

number in a similar county with 1 percentage point less population in low-, moderate-, and 

upper-income tracts for:

all counties counties in:

states that do not 

prohibit payday 

lending

states that 

prohibit payday 

lending

metropolitan 

areas

rural areas

Ratio for population in low -

income tracts

0.988a0.988a1.000 0.987b0.990a

(0.003) (0.003) (0.010) (0.005) (0.002)

Ratio for population in 

moderate-income tracts

1.001 1.001 1.003 1.002 1.000

(0.001) (0.001) (0.005) (0.002) (0.002)

Ratio for population in 

upper-income tracts

1.000 1.000 1.003 1.004 0.998a

(0.001) (0.001) (0.002) (0.003) (0.001)

Number of counties 2,974 2,633 332 1003 1,971

Number of areas 286 254 35 241 45

Log likelihood -4,510 -3,872 -426 -1,874 -2,549

Source: GAO analysis of data from the Census Bureau and the Federal Financial Institutions Examination Council. | GAO-18-244

Notes: The table shows the exponentiated coefficient estimates from Poisson regressions of the 

number of alternative financial services establishments in counties on the fractions of county 

population in low-, moderate-, and upper-income Census tracts. The regressions also controlled for 

county population; the fractions of county population in tracts by population density an d land use 

category; the distribution of county population across different groups by race/ethnicity, gender, age, 

education, and labor force status; the fraction of housing stock that is owner-occupied; and the 

metropolitan area or rural area of the state where the county is located. The omitted income group is 

middle income. All else being equal, the estimated average ratio of the number of establishments in a 

county to the number of establishments in a county with 1 percentage point less population in low-, 

moderate-, and upper-income tracts is approximately equal to the reported exponentiated coefficient 

estimate. Robust standard errors are in parentheses.

a

Statistically significant at the 1 percent level.

b

Statistically significant at the 5 percent level.
Appendix III: Econometric Analysis of 

Household Income and Use of Financial 

Products and Services

Page 77 GAO-18-244 Community Reinvestment Act

Appendix III: Econometric 

Analysis of Household 

Income and Use of Financial 

Products and Services

Data

To assess the extent to which household use of financial products and 

services varies with income, we used data from the Federal Deposit 

Insurance Corporation’s National Survey of Unbanked and Underbanked 

Households for 2011, 2013, and 2015. To assess the use and 

accessibility of basic banking services for households with different 

incomes, we used data on whether or not households:

· Had a checking or savings account at the time of the survey,

· Used alternative financial services (AFS) providers for transactions, 

such as money orders or check-cashing, in the past 12 months,

· Used general-purpose reloadable prepaid cards in the past 12 

months,

· Typically received income and paid bills using methods associated 

with checking or savings accounts in the past 12 months,

· Used direct deposit in the past 12 months,

· Used a bank teller, automated teller machine (ATM) or bank kiosk, 

telephone banking, online banking, or mobile banking to access their 

account in the past 12 months (households with checking or savings 

accounts only),

· Did not have a checking or savings account because bank hours or 

locations are inconvenient, because bank account fees are too high or 

unpredictable, because banks do not offer needed products or 

services, because they do not trust banks, because they do not have 

enough money to keep in an account, because avoiding banks 

provides more privacy, or because they cannot open an account due 

to personal identification, credit, or former bank account problems 

(only households that do not have a checking or savings account).
Appendix III: Econometric Analysis of 

Household Income and Use of Financial 

Products and Services

See table 17 for the distribution of values of these variables for 

households in 2015.

Page 78 GAO-18-244 Community Reinvestment Act
Appendix III: Econometric Analysis of 

Household Income and Use of Financial 

Products and Services

Table 17: Household Responses to Questions Related to Basic Banking Services, 2015 (percent)

Page 79 GAO-18-244 Community Reinvestment Act

Group Questions Yes No Do not 

know or 

refused to 

answer

Estimated percentage of households 

that:

Have a checking or savings account at the time 

of the survey

93.0 7.0 0

Used alternative financial services providers for 

transactions w ithin the past 12 months

20.2 74.2 5.6

Used general-purpose reloadable prepaid cards 

w ithin the past 12 months

9.8 85.8 4.4

Typically received income and paid bills using 

methods associated w ith checking or savings 

accounts in the past 12 months

70.5 29.5 0

Used direct deposit in the past 12 months 80.4 19.6 0

Estimated percentage of households 

with a checking or savings account that 

accessed it in the past 12 months using:

Bank teller 75.5 24.5 0

Automated teller machine or kiosk 69.8 30.2 0

Telephone banking 27.0 73.0 0

Online banking 60.4 39.6 0

Mobile banking 31.9 68.1 0

Estimated percentage of households 

that do not have a checking or savings 

account because:

Bank hours or locations are inconvenient 12.6 83.2 4.2

Bank account fees are too high or unpredictable 31.6 63.3 5.2

Banks do not offer needed products or services 15.4 79.1 5.5

They do not trust banks 28.0 66.4 5.6

They do not have enough money to keep in an 

account

57.4 36.8 5.9

Avoiding banks provides more privacy 28.5 65.1 6.4

They have personal identification, credit, or 

former bank account problems

16.4 76.9 6.6

Source: GAO analysis of data from the Federal Deposit Insurance Corporation. | GAO-18-244

Notes: The sample size is 36,189, representing a population of about 127.5 million. Of the 

households sampled, 32,491 had a checking or savings account, representing a population of about 

113.3 million. Similarly, 2,275 households sampled did not have either a checking or a savings 

account, representing a population of about 9.0 million.
Appendix III: Econometric Analysis of 

Household Income and Use of Financial 

Products and Services

To assess the demand for and access to small-dollar, unsecured credit 

for households with different incomes, we used data on whether or not 

households:

· Used nonbanks or AFS providers for credit, such as payday loans, 

auto title loans, pawnshop loans, and tax refund anticipation loans, in 

the past 12 months,

· Used credit cards in the past 12 months,

· Had a personal loan or line of credit at a bank in the past 12 months,

· Desired consumer credit in the past 12 months—applied for a new 

credit card or personal loan or line of credit at a bank (excluding 

student loans or loans taken out for major purchases like a house or 

car), or wanted to but did not for fear of being turned down,

· Were consumer credit constrained in the past 12 months—applied for 

a new credit card or personal loan or line of credit from a bank and 

were partially or fully turned down, or wanted a new credit card or a 

personal loan or line of credit from a bank but did not apply for fear of 

being turned down,

· Set aside money for unexpected expenses or emergencies in the past 

12 months,

· Fell behind on bills in the past 12 months.

See table 18 for the distribution of values of these variables for 

households in 2015.

Page 80 GAO-18-244 Community Reinvestment Act
Appendix III: Econometric Analysis of 

Household Income and Use of Financial 

Products and Services

Table 18: Household Responses to Questions Related to Small-Dollar, Unsecured Loans, 2015 (percent)

Page 81 GAO-18-244 Community Reinvestment Act

Estimated percentage of households that, in the past 12 months: Yes No Do not know or 

refused to 

answer

Used nonbanks or alternative financial services providers for credit 7.7 86.9 5.5

Used credit cards 66.5 33.5 0

Had a personal loan or line of credit at a bank 9.8 90.2 0

Desired consumer credit 16.8 75.5 7.7

Were consumer credit constrained 7.0 75.5 17.5

Set aside money for unexpected expenses or emergencies 56.3 43.7 0

Fell behind on bills 15.6 76.9 7.5

Source: GAO analysis of data from the Federal Deposit Insurance Corporation. | GAO-18-244

Notes: The sample size is 36,189, representing a population of about 127.5 million. A household 

desired consumer credit if it applied for a new credit card or personal loan or line of credit at a bank 

(excluding student loans or loans taken out for major purchases like a house or car), or wanted to but 

did not for fear of being turned down. A household was credit constrained if it applied for a new credit 

card or personal loan or line of credit from a bank and was partially or fully turned down, or wanted a 

new credit card or a personal loan or line of credit from a bank but did not apply for fear of being 

turned down.

Methodology

For each of the financial behaviors and characteristics of households 

listed above, we estimated the relationship between household income 

and the likelihood that a household exhibited the behavior or had the 

characteristic. Specifically, for each behavior or characteristic listed 

above, we estimated the parameters of the following type of econometric 

model:

where y=1 if a household exhibits the behavior or has the characteristic 

and y=0 otherwise; X is a vector of characteristics of households and 

heads of households other than income; a, b, c, d, f and Q are 

parameters to be estimated; and e is an error term.

To measure income, we used indicator variables that are equal to 1 if 

household income is in a given interval and equal to 0 otherwise—
Appendix III: Econometric Analysis of 

Household Income and Use of Financial 

Products and Services

$14,999 or less, from $15,000 to $29,999, from $30,000 to $49,999, and 

from $50,000 to $74,999. The reference group is households with income 

of $75,000 or more. With this setup, the parameters of interest—b, c, d, 

and f—show the effects of the income groups on the likelihoods that 

households exhibit a behavior or have a characteristic relative to 

households with income of $75,000 or more. For example, if y indicates 

whether or not a household has a checking or savings account, then the 

parameter b is the likelihood that households with income of $14,999 or 

less have a checking or savings account relative to households with 

income of $75,000 or more, all else being equal. If b is less than zero,

then households with income of $14,999 or less are less likely to have a 

checking or savings account than households with $75,000 or more, and 

vice versa.

Our approach to measuring household income allows the relationship 

between income and the probability that a dependent variable equals 1 to 

be nonlinear. As a practical matter, income is measured this way in the 

raw data.

The characteristics of households and household heads other than 

income generally include household type, homeownership status, 

language, age, education, employment, nativity and citizenship, 

race/ethnicity, location (either region or metropolitan area or rural area of 

a state), and location type. We use groups of indicator variables to control 

for all of these characteristics. Table 19 summarizes the characteristics of 

households and heads of households in our data for 2015.

Page 82 GAO-18-244 Community Reinvestment Act
Appendix III: Econometric Analysis of 

Household Income and Use of Financial 

Products and Services

Table 19: Characteristics of Households and Heads of Households, 2015

Page 83 GAO-18-244 Community Reinvestment Act

Household characteristics Estimated percentage of 

households

Income Less than $15,000 14.1

$15,000 to $29,999 16.8

$30,000 to $49,999 19.9

$50,000 to $74,999 18.0

$75,000 or more 31.2

Household type Married couple 46.7

Unmarried female-headed family 12.5

Unmarried male-headed family 4.8

Female individual 18.4

Male individual 17.3

Other 0.2

Homeownership status Homeow ner 63.3

Nonhomeow ner 36.7

Language spoken at home Spanish only 2.2

Not Spanish only 97.8

Location type Metropolitan area – principal city 28.6

Metropolitan area – balance 42.8

Not in metropolitan area 14.0

Not identified 14.5

Region Northeast 17.8

Midw est 21.7

South 37.9

West 22.6

Sample size 36,189

Population 127.5 million

Head of household characteristics Estimated percentage of 

heads of households

Age 15-24 years 5.2

25-34 years 16.5

35-44 years 17.0

45-54 years 18.6

55-64 years 18.8

65 years and over 23.9
Appendix III: Econometric Analysis of

Household Income and Use of Financial 

Products and Services

Page 84 GAO-18-244 Community Reinvestment Act

Head of household characteristics Estimated percentage of 

heads of households

Education No high school diploma 10.8

High school diploma 26.1

Some college 29.4

College degree 33.7

Labor force status Employed 61.3

Unemployed 3.0

Not in labor force 35.7

Nativity and citizenship U.S.-born 85.2

Foreign-born citizen 7.6

Foreign-born non-citizen 7.2

Race/ethnicity Black 14.1

Hispanic 12.6

Asian 4.9

White 67.0

Other 1.4

Sample size 36,189

Population 127.5 million

Source: GAO analysis of data from the Federal Deposit Insurance Corporation. | GAO-18-244

Notes: The data also include information on the state and metropolitan area in which households live. 

We do not report summary statistics for these variables for brevity.

We collapsed the responses “no” and “don’t know/refused” into a single 

category for our regression analysis, so the dependent variables are all 

binary indicator variables.

We derived our baseline estimates from linear probability models that 

account for the survey features of the data. We estimated separate 

regressions for each dependent variable listed in tables 17 and 18 using 

data for 2015, and also using data for 2011 and 2013 when possible. We 

estimated the parameters of three specifications: (1) one with income as 

the only explanatory variable, (2) one with the full set of explanatory 

variables listed in table 19, and (3) one with the full set of explanatory 

variables listed in table 19 but with indicators for metropolitan areas and 

rural areas of states instead of region indicators.

We started with the linear probability model as a practical option that 

balances the ability to account for the survey features of the data with the 

processing time it takes to estimate the parameters, especially in a model 

with explanatory variables that are groups of indicators instead of 

continuous variables. However, limitations of these baseline models 
Appendix III: Econometric Analysis of 

Household Income and Use of Financial

Products and Services

include the inability to allow for arbitrary correlation in the errors for 

households in the same location and the fact that the linear probability 

model is likely misspecified because the predicted probabilities may be 

less than zero or larger than one for some observations.

To assess the sensitivity of our results, we used data for 2015 to estimate 

linear probability models that did not account for the survey features of 

the data but that accounted for unobserved features of households’

locations to affect their financial choices and also allowed for arbitrary 

correlation in the errors for households in the same location. These 

models included income and the full set of other explanatory variables. 

Finally, we used data for 2015 to estimate probit models that did not 

account for the survey features of the data but that did account for the 

binary nature of the dependent variables. In this case, we model 

household location using region indicators only.

Caveats and Limitations

Page 85 GAO-18-244 Community Reinvestment Act

Our results have limitations and should be interpreted with caution. For 

example, our analysis does not establish a causal relationship between 

household characteristics and household behavior, only correlations. Our 

results may not generalize to other time periods. In addition, our results 

are indicative of household behavior on average, but the behavior of any 

one individual household may be different.

In some cases, our approach does not explain much of the variation in 

financial behaviors and characteristics of households. While we are able 

to explain 20 to 23 percent of the variation across households in the 

likelihood of having a checking or savings account, we are only able to 

explain less than 5 percent of the variation across households in the 

likelihood of having a personal loan or line of credit from a bank in the 

past 12 months.

Furthermore, the data do not include variables identifying households’

locations at levels of detail beyond the metropolitan area in which they 

live. Thus, we are not able to account for the influence of the 

characteristics of a household’s local community that may influence their 

decisions, such as the numbers of banks and AFS providers nearby. 

However, recent research suggests that household socioeconomic and 

demographic characteristics generally play a larger role in determining 

household financial decisions—such as whether or not to open a bank 
Appendix III: Econometric Analysis of 

Household Income and Use of Financial 

Products and Services

account—than the characteristics of the community where the household 

lives.

Our estimates of the relationships between household behaviors and 

income may also reflect factors other than income. We controlled for 

several characteristics that may be associated with the household 

behaviors we analyzed and also may be correlated with income, such as 

race/ethnicity, educational attainment, and the homeownership rate. 

However, we may not have controlled for all possible characteristics that 

are associated with all household behaviors. If a characteristic we omitted 

from the analysis of some behavior is associated with income, then our 

results may reflect the relationship between that behavior and the omitted 

factor instead of, or in addition to, the relationship between household 

behavior and income.

Finally, our analysis of reasons why unbanked households are unbanked 

uses a relatively small number of observations. Only about 7 percent of 

households were unbanked in 2015, and our sample of unbanked 

households consists of 2,275 observations. The number of observations 

may not always be large enough to reveal significant differences in 

reasons for being unbanked for households with different incomes.

Results

Page 86 GAO-18-244 Community Reinvestment Act

Our estimates suggest that there are key differences in the use and 

accessibility of basic banking services for households with different 

incomes. In 2015, compared to otherwise similar households with 

$75,000 or more income, households with incomes of $29,999 or less 

were less likely to have a checking or savings account and more likely to 

have used general-purpose reloadable prepaid cards (see table 20). 

Lower-income households were more likely to use AFS providers for 

transactions and less likely to use only bank methods for paying bills and 

receiving income than higher income households. Compared to otherwise 

similar households with $75,000 or more in income, households with 

lower incomes were less likely to use direct deposit.

Table 20: Estimated Differences in Methods for Obtaining Basic Banking Services for Low er-Income Households Relative to 

Households with Annual Income of $75,000 or More, 2015

Household annual 

income

Estimated difference between the fraction of lower-income households and the fraction of similar 

households with annual income of $75,000 or more that:
Appendix III: Econometric Analysis of 

Household Income and Use of Financial 

Products and Services

Page 87 GAO-18-244 Community Reinvestment Act

had a checking or 

savings account

used alternative 

financial services 

providers for 

transactions in the 

past 12 months

used generalpurpose reloadable 

prepaid cards in the 

past 12 months

typically 

received 

income and 

paid bills using 

methods 

associated with 

banks in past 

12 months

used direct 

deposit

Less than $15,000

(decimal points)

-0.151a0.110a0.044a-0.213a-0.232a

(0.008) (0.010) (0.007) (0.013) (0.012)

$15,000 to $29,999

(decimal points)

-0.045a0.074a0.020a-0.143a-0.148a

(0.005) (0.008) (0.006) (0.010) (0.009)

$30,000 to $49,999

(decimal points)

-0.000 0.044a0.001 -0.082a-0.079a

(0.004) (0.007) (0.005) (0.009) (0.007)

$50,000 to $74,999

(decimal points)

0.011a0.030a0.007 -0.045a-0.029a

(0.003) (0.006) (0.006) (0.008) (0.006)

Sample size 36,189 36,189 36,189 31,304 34,275

R-squared 0.207 0.142 0.400 0.125 0.174

Source: GAO analysis of data from the Federal Deposit Insurance Corporation. | GAO-18-244

Notes: The table shows the estimated average difference between (1) the fraction of households with 

income in a given range using a basic banking service and (2) the fraction of similar house holds in 

the same metropolitan area or rural area with income of $75,000 or more using that service. These 

differences are estimated using linear probability regressions that also include controls for family type, 

tenure choice, and language spoken at home, as well as the age, education, labor force status, 

nativity and citizenship, and race/ethnicity of the head of the household, and location type and 

metropolitan area or rural area of state where the household is located. Standard errors calculated 

using successive difference replication based on the household weight and replicate weights are in 

parentheses.

a

Statistically significant at the 1 percent level.

Our results for other years and other specifications were generally similar. 

Our estimates of the relationships between household income and the 

likelihoods that a household has a checking or saving account and used 

AFS providers for transactions are generally consistent with the findings 

of other research that analyzed household use of bank accounts and AFS 

providers for basic banking services.

Our estimates suggest that other characteristics of households are also 

associated with how households obtain basic banking services. For 

example, households that do not own their home are less likely than 

those that do to have a checking or saving account and more likely to use 

AFS providers for transactions. Households headed by an individual with 

more education are more likely to have a checking or savings account 

and less likely to use AFS providers for transactions. Households headed 

by someone who is unemployed or not in the labor force are less likely to 

have a checking or savings account than those headed by someone who 
Appendix III: Econometric Analysis of 

Household Income and Use of Financial 

Products and Services

is employed. Households headed by someone who is unemployed are 

more likely to use AFS providers for transactions than those headed by 

someone who is employed, while the opposite is the case for households 

headed by someone who is not in the labor force. The family type and the 

age, nativity and citizenship status, and race or ethnicity with which the 

head of household identifies are also associated with differences in 

households’ methods for obtaining basic banking services.

Our estimates suggest that differences in income were associated with 

differences in the way households accessed basic banking services, even 

among households that had either a checking or savings account. In 

2015, among households with checking or savings accounts, those with 

income from $15,000 to $74,999 were more likely to access their 

accounts via a bank teller than those with either higher or lower income, 

all else being equal (see table 21). In addition, compared to otherwise 

similar households with $75,000 or more in income, households with 

lower incomes were less likely to use ATMs or kiosks, telephone banking, 

online banking, and mobile banking. Contributing factors are that 

households with lower incomes were less likely than households with 

higher incomes to have home Internet access, mobile phones, and 

smartphones. Results for other years and other specifications were 

generally similar.

Page 88 GAO-18-244 Community Reinvestment Act
Appendix III: Econometric Analysis of 

Household Income and Use of Financial 

Products and Services

Table 21: Estimated Differences in Methods for Accessing Checking and Savings Accounts for Low er-Income Households 

Page 89 GAO-18-244 Community Reinvestment Act

Relative to Households with Annual Income of $75,000 or More, 2015

Household annual 

income

Estimated difference between the fraction of lower-income households and the fraction of similar 

households with annual income of $75,000 or more that used:

bank teller automated teller 

machine or kiosk

telephone banking online banking mobile banking

Less than $15,000

(decimal points)

0.007 -0.125a-0.055a-0.236a-0.127a

(0.012) (0.012) (0.013) (0.013) (0.011)

$15,000 to $29,999

(decimal points)

0.048a-0.093a-0.048a-0.201a-0.125a

(0.010) (0.011) (0.011) (0.011) (0.010)

$30,000 to $49,999

(decimal points)

0.039a-0.055a-0.035a-0.143a-0.095a

(0.009) (0.009) (0.010) (0.009) (0.009)

$50,000 to $74,999

(decimal points)

0.029a-0.031a-0.019b-0.067a-0.053a

(0.008) (0.008) (0.010) (0.008) (0.008)

Sample size 32,491 32,491 32,491 32,491 32,491

R-squared 0.050 0.126 0.050 0.268 0.203

Source: GAO analysis of data from the Federal Deposit Insurance Corporation. | GAO-18-244

Notes: The table shows the estimated average difference between (1) the fraction of households with 

income in a given range using a method for a ccessing checking and savings accounts and (2) the 

fraction of similar households in the same metropolitan area or rural area with income of $75,000 or 

more using the same method. These differences are estimated using linear probability regressions 

that also include controls for family type, tenure choice, and language spoken at home, as well as the 

age, education, labor force status, nativity and citizenship, and race/ethnicity of the head of the 

household, and location type and metropolitan area or rural area of state where the household is 

located. Standard errors calculated using successive difference replication based on the household 

weight and replicate weights are in parentheses.

a

Statistically significant at the 1 percent level.

b

Statistically significant at the 5 percent level.

Our estimates suggest that income differences are associated with some 

differences among unbanked households—households with neither a 

checking nor a savings account—in the reasons for being unbanked. In 

2015, among unbanked households, those with lower incomes are just as 

likely as those with higher incomes to be unbanked because bank fees 

are too high or unpredictable, because banks do not offer needed 

products or services, because they do not trust banks, and because 

avoiding banks provides more privacy (see table 22). However, lowerincome households—those with income of $49,999 or less—are more 

likely than higher-income households to be unbanked because they do 

not have enough money to keep in an account or because they have 

personal identification, credit, or former bank account problems. Finally, 

households with incomes from $30,000 to $74,999 are more likely than 

other households to be unbanked because bank hours or locations are 

inconvenient.
Appendix III: Econometric Analysis of 

Household Income and Use of Financial 

Products and Services

Table 22: Estimated Differences in Reasons for Not Having Checking or Savings Accounts for Low er-Income Households 

Page 90 GAO-18-244 Community Reinvestment Act

Relative to Households with Annual Income of $75,000 or More, 2015

Household 

annual 

income

Estimated difference between the fraction of low er-income households and the fraction of similar households 

with annual income of $75,000 or more that did not have a checking or savings account because:

bank account 

fees are too 

high or 

unpredictable

banks do not 

offer needed 

products or 

services

they do not 

trust banks

avoiding

banks 

provides 

more privacy

they do 

not have 

enough 

money to 

keep in an 

account

they have 

personal 

identification, 

credit, or 

former bank 

account 

problems

bank hours or 

locations 

are not 

convenient

Less than 

$15,000 

(decimal 

points)

0.016 0.027 0.034 0.038 0.338a0.092a0.052

(0.093) (0.057) (0.063) (0.078) (0.084) (0.037) (0.047)

$15,000 to 

$29,999 

(decimal 

points)

0.009 0.060 0.061 0.077 0.266a0.124a0.024

(0.092) (0.059) (0.062) (0.079) (0.082) (0.041) (0.044)

$30,000 to 

$49,999 

(decimal 

points)

0.081 0.065 0.095 0.088 0.190b0.071c0.086c

(0.097) (0.061) (0.067) (0.083) (0.086) (0.042) (0.050)

$50,000 to 

$74,999 

(decimal 

points)

0.041 0.001 -0.017 0.058 0.034 0.072 0.125b

(0.099) (0.062) (0.080) (0.094) (0.095) (0.048) (0.061)

Sample size 2,275 2,275 2,275 2,275 2,275 2,275 2,275

R-squared 0.179 0.152 0.180 0.199 0.223 0.174 0.150

Source: GAO analysis of data from the Federal Deposit Insurance Corporation. | GAO-18-244

Notes: The table shows the estimated average difference between (1) the fraction of households with 

income in a given range that cite a specific reason for not having a checking or savings account and 

(2) the fraction of similar households in the same metropolitan area or rural area with income of 

$75,000 or more that cite the same reason. These differences are estimated using linear probability 

regressions that also include controls for family type, tenure choice, and language spoken at home, 

as well as the age, education, labor force status, nativity and citizenship, and race/ethnicity of the 

head of the household, and location type and metropolitan area or rural area of state where the 

household is located. Standard errors calculated using successive difference replication based on the 

household weight and replicate weights are in parentheses.

a

Statistically significant at the 1 percent level.

b

Statistically significant at the 5 percent level.

c

Statistically significant at the 10 percent level.

Results for other specifications for 2015 were generally similar. Results 

for other years were also generally similar, but with some exceptions. In 

2013, households with income of $74,999 or less were no more likely 

than households with income of $75,000 or more to report being 

unbanked because they did not have enough money to keep in an 

account. Households with income of $29,999 or less or from $50,000 to 
Appendix III: Econometric Analysis of 

Household Income and Use of Financial 

Products and Services

$74,999 were no more likely than households with income of $75,000 or 

more to report being unbanked because they had identification, credit, or 

former bank account problems. Finally, households with income from 

$30,000 to $74,999 were not more likely than households with income of 

$75,000 or more to report being unbanked because bank hours or 

locations were inconvenient.

Our estimates suggest that income differences are associated with 

differences in households’ desire for small-dollar, unsecured loans and 

where they obtain this type of credit. Households with lower incomes are 

less likely to have saved for unexpected expenses or emergencies and 

more likely to have fallen behind on bills in the past 12 months than 

households with higher incomes, suggesting that their demand for smalldollar, unsecured loans may be higher (see table 23). However, 

households with lower incomes were more likely to have obtained credit 

from an AFS provider and less likely to have used a credit card in the past 

12 months than similar households with higher incomes.

Page 91 GAO-18-244 Community Reinvestment Act
Appendix III: Econometric Analysis of 

Household Income and Use of Financial 

Products and Serv ices

Table 23: Estimated Differences in Savings, Bill Paying, and Consumer Credit Behaviors for Low er-Income Households 

Page 92 GAO-18-244 Community Reinvestment Act

Relative to Households with Annual Income of $75,000 or More, 2015

Household 

annual 

income

Estimated difference between the fraction of low er-income households and the fraction of similar households 

with annual income of $75,000 or more that:

set aside 

money for 

unexpected 

expenses or 

emergencies

fell behind 

on bills

used 

alternative 

financial 

services 

providers for 

credit

used credit 

cards

had consumer 

credit from a 

bank

desired 

consumer 

credita

were 

consumer 

credit 

constrainedb

Less than 

$15,000 

(decimal 

points)

-0.274c0.185c0.039c-0.332c-0.059c-0.050c0.031c

(0.012) (0.009) (0.007) (0.012) (0.008) (0.010) (0.006)

$15,000 to 

$29,999 

(decimal 

points)

-0.191c0.140c0.035c-0.202c-0.045c-0.030c0.037c

(0.010) (0.009) (0.006) (0.009) (0.008) (0.008) (0.007)

$30,000 to 

$49,999 

(decimal 

points)

-0.120c0.086c0.036c-0.108c-0.032c-0.037c0.020c

(0.010) (0.007) (0.005) (0.009) (0.007) (0.008) (0.005)

$50,000 to 

$74,999 

(decimal 

points)

-0.060c0.049c0.015c-0.047c-0.021c-0.016d0.016c

(0.008) (0.006) (0.004) (0.007) (0.007) (0.008) (0.005)

Sample size 33,531 36,189 36,189 33,759 33,743 36,189 36,189

R-squared 0.160 0.127 0.065 0.283 0.043 0.046 0.047

Source: GAO analysis of data from the Federal Deposit Insurance Corporation. | GAO-18-244

Notes: The table shows the estimated average difference between (1) the fraction of households with 

income in a given range exhibiting a behavior and (2) the fraction of similar households in the same 

metropolitan area or rural area with income of $75,000 or more exhibiting the same behavior. These 

differences are estimated using linear probability regressions that also include controls for family type, 

tenure choice, and language spoken at home, as well as the age, education, labor force status, 

nativity and citizenship, and race/ethnicity of the head of the household, and location type and 

metropolitan area or rural area of state where the household is located. Standard errors calculated 

using successive difference replication based on the household weight and replicate weights are in 

parentheses.

a

A household desired consumer credit if it applied for a new credit card or personal loan or line of 

credit at a bank (excluding student loans or loans taken out for major purchases like a house or car), 

or wanted to but did not for fear of being turned down.

b

A household was credit constrained if it applied for a new credit card or personal loan or line of credit 

from a bank and was partially or fully turned down, or wanted a new credit card or a personal loan or 

line of credit from a bank but did not apply for fear of being turned down.

c

Statistically significant at the 1 percent level.

d

Statistically significant at the 5 percent level.

Furthermore, households with lower incomes were less likely to have had 

a personal loan or line of credit from a bank in the past 12 months 

(excluding student loans or loans taken out for major purchases like a 
Appendix III: Econometric Analysis of 

Household Income and Use of Financial 

Products and Services

house or car) than households with higher incomes. They were both less 

likely to have desired this type of credit from a bank and more likely to 

have found themselves unable to access this type of credit from a bank, 

even though they were willing to pay the going interest rates. Altogether, 

these results suggest that lower-income households are likely to have 

greater demand for small-dollar unsecured loans than higher-income 

households, but are less likely to obtain them from traditional banks and 

more likely to obtain them from AFS providers. Results for other years 

and other specifications were generally similar.

Our estimates also suggest that other characteristics of households are 

also associated with factors that affect demand for small-dollar, 

unsecured loans. For example, households that do not own their home 

are less likely than those that do to save for emergencies, to have a credit 

card, or to have a consumer loan from a bank. They are more likely to fall 

behind on bills and to obtain credit from an AFS provider. Households 

headed by an individual with more education are more likely to have 

emergency savings and credit cards and less likely to fall behind on bills 

or obtain credit from an AFS provider. Households headed by someone 

who is unemployed or not in the labor force are less likely than those 

headed by someone who is employed to have emergency savings or a 

credit card. Those headed by someone who is unemployed are more 

likely to obtain credit from an AFS provider, while those who are not in the 

labor force are not. Finally, we also controlled for family type, age, nativity 

and citizenship status, and the race or ethnicity with which the head of 

household identifies, and we found that these factors were sometimes 

significant.

Additional Information on the National Survey of 

Page 93 GAO-18-244 Community Reinvestment Act

Unbanked and Underbanked Households

The National Survey of Unbanked and Underbanked Households data 

used in this analysis were collected through supplements to the Current 

Population Survey (CPS). The CPS is the primary source of information 

on the labor force characteristics of the U.S. population, including 

employment, unemployment, and earnings statistics. It also includes a 

variety of demographic characteristics, such as age, sex, race, marital 

status, and educational attainment. The CPS sample consists of 

independent samples in each state and the District of Columbia. The 

sample sizes for each state are set so that specific precision 

requirements for estimating unemployment rates will be met. The sample 

design ensures that most of the households in a given state have the 
Appendix III: Econometric Analysis of 

Household Income and Use of Financial 

Products and Services

same probability of being selected, though, in general, household 

selection probabilities will vary across states. Because the CPS design is 

state-based, most of the estimates for the National Survey of Unbanked 

and Underbanked Households should be precise at the state level and for 

some metropolitan statistical areas.

For the June 2015 CPS, a statistical sample of 60,841 survey-eligible 

households was selected from the sampling frame. Of these households, 

52,801 participated in the CPS, resulting in an 87 percent response rate. 

There were 8,040 nonrespondent eligible households. Most of these 

nonrespondents either refused to participate (66 percent) or were not 

home at the time of the interview visit or call (20 percent). The remaining 

14 percent consisted of households where (1) the household respondent 

was temporarily absent, (2) the household could not be located, (3) 

language barriers prevented the interview, or (4) other reasons. Because 

of the availability of translators for many languages, only 0.5 percent of 

the nonrespondents (37 households) did not participate as a result of 

language barriers. Sample sizes and response rates for the June 2011 

and June 2013 CPS were similar.

Coverage ratios for the CPS are derived as a measure of the percentage 

of persons in the target universe—the U.S. civilian, noninstitutionalized 

population, aged 15 or older—that are included in the sampling frame. 

The overall coverage ratio for the June 2015 CPS was 89 percent. The 

missing 11 percent consists of three groups: (1) persons residing in 

households that are not in the CPS sampling frame, (2) 

noninstitutionalized persons not residing in households at the time the 

CPS was conducted, and (3) household residents that were not listed as 

household members for the CPS for various reasons. The overall 

coverage ratios for the June 2011 and June 2013 CPS were similar.

All households that participated in the June 2011, 2013, and 2015 CPS 

were eligible to participate in the National Survey of Unbanked and 

Underbanked Households. However, only households whose 

respondents specified that they had some level of participation in their 

household finances and responded “Yes” or “No” to whether someone in 

their household had a bank account were considered survey 

respondents. All other CPS household respondents were asked no further 

questions and were classified as nonrespondents for the supplement. Of 

the 52,801 households that participated in the CPS in June 2015, 36,189 

(69 percent) also participated in the National Survey of Unbanked and 

Underbanked Households. For the June 2011 and June 2013 CPS, 84 

percent and 77 percent of participating households, respectively, also 

Page 94 GAO-18-244 Community Reinvestment Act
Appendix III: Econometric Analysis of 

Household Income and Use of Financial 

Products and Services

participated in the National Survey of Unbanked and Underbanked 

Households. The weights calculated by the Census Bureau for the CPS 

and the National Survey of Unbanked and Underbanked Households

respondents were adjusted to account for both nonresponse and 

undercoverage. These weight adjustments help correct any biases in 

estimates because of nonresponse and undercoverage, so that results 

from the CPS are representative of the U.S. civilian, noninstitutionalized 

population, aged 15 or older.

Page 95 GAO-18-244 Community Reinvestment Act
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

Page 96 GAO-18-244 Community Reinvestment Act

Appendix IV: Additional 

Information on Options That 

Could Further Encourage 

Banking Services and SmallDollar Loans

Our work identified a number of suggested options not related to the 

Community Reinvestment Act (CRA) that could further encourage 

financial institutions to provide basic banking services and small-dollar, 

nonmortgage consumer loans in low- and moderate-income (LMI) areas.1

We drew information from all the methodological approaches we 

conducted to include in this thematically organized and comprehensive 

appendix, including a literature review, interviews, affinity mapping 

exercise, stakeholder survey, and discussion groups.2 This appendix 

provides additional information on suggested options in the following two

areas: (1) changes designed to address concerns among financial 

institutions about the profitability and safety and soundness of such loans 

and (2) changes in other non-CRA areas. While our analysis did not allow 

us to form conclusions on the merits of the suggested options, we present 

the strengths and weaknesses of them as identified by stakeholders.

 

1Congress passed CRA in 1977 to encourage banking institutions to meet the credit 

needs of the communities in w hich they operate, including LMI communities, consistent 

w ith safe and sound banking operations. Basic banking services refers to those financial 

services needed to allow the average consumer to engage in necessary day-to-day 

banking activities. These services include deposit taking and simple transaction or savings 

account programs w ith low fees. While there is no single definition of small-dollar, 

nonmortgage consumer loans, the term generally refers to unsecured, nonmortgage 

consumer loans that are less than $2,500. These products may include various fees, 

interest rates, and terms.

2During the affinity mapping exercise, w e grouped the options we identified from both the 

literature review and interview s into a consolidated set of suggested options.
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

Suggested Options That Address Concerns about 

Page 97 GAO-18-244 Community Reinvestment Act

Profitability and Safety and Soundness

According to knowledgeable stakeholders, suggested options designed to 

address concerns about profitability and safety and soundness could 

further encourage financial institutions to provide small-dollar, 

nonmortgage consumer loans in LMI areas.3 Such options could include 

lessening underwriting restrictions on loans under a certain dollar amount 

and clarifying interest rate maximums. Several participants in our think 

tank discussion group noted that these types of options would be the 

most important ones to encourage more small-dollar loans within the 

marketplace. Two participants in our industry discussion group stated that 

regulatory restrictions, both implicit and explicit, have made it difficult for 

banks to provide accessible and affordable small-dollar, nonmortgage 

consumer loans. However, the Consumer Financial Protection Bureau 

(CFPB) recently published a final rule that may affect banks’ willingness 

to make small-dollar, nonmortgage consumer loans.4

 

3This section does not discuss basic banking services, as stakeholder concerns w ere 

primarily focused on small-dollar lending. How ever, some stakeholders noted that due to 

the typically low -dollar balances in accounts maintained by LMI individuals, financial 

institutions have concerns about the profitability of basic banking services as w ell.

4On November 17, 2017, CFPB issued a final rule that, among other things, governs the 

underw riting of certain personal loans w ith short-term or balloon payment structures. See 

“Payday, Vehicle Title, and Certain High-Cost Installment Loan Rule,” 82 Fed. Reg. 54472 

(Nov. 17, 2017). According to CFPB, the rule is “aimed at stopping payday debt traps by 

requiring upfront w hether consumers have the ability to repay their loans.” Under the new

rule, lenders that make short-term loans of 45 days or less or longer-term balloon payment 

loans generally must make an “ability-to-repay” determination, that is, must reasonably 

determine that the consumer w ill be able to make payments on the loan w hile also 

meeting major financial obligations and basic living expenses. (Loans made by a lender 

w ho makes 2,500 or few er covered loans per year and derives no more than 10 percent of 

its revenue from such loans are exempt from the CFPB rule. According to CFPB, these 

are usually small personal loans made by community banks or credit unions to existing 

customers or members.) The rule also covers a third type of loan—loans w ith a term 

longer than 45 days w ith an annual percentage rate (APR) over 36 percent that gives the 

lender account access. These loans are not subject to the ability-to-repay provisions but 

are subject to certain penalty fee prevention provisions. According to CFPB, these 

protections give consumers a chance to dispute any unauthorized or erroneous attempts 

by a lender to collect payment from the borrow er’s account and to arrange for 

unanticipated payments that are due. Since the compliance date for most provisions of the 

rule, including these provisions, is August 2019, its impact on banks’ w illingness to make 

small-dollar, nonmortgage consumer loans is not currently clear. CFPB recently released 

a statement that it intended to engage in a rulemaking process that reconsidered the 

payday rule.
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

In the literature we reviewed and interviews, stakeholders suggested 

options that regulators could adopt that would address concerns about 

profitability and safety and soundness.

Page 98 GAO-18-244 Community Reinvestment Act

5 Suggested options include:

· Establishing low-cost, streamlined underwriting requirements.

For example, an article by a representative of the Pew Charitable 

Trusts described how low-cost, streamlined underwriting requirements 

that require little documentation would allow banks to make smalldollar, nonmortgage loans profitably.6 A former Federal Deposit 

Insurance Corporation (FDIC) chair agreed, telling us that for loans 

under a certain amount, regulators should require less underwriting 

and allow income evaluations for small loans that are less 

burdensome than those for larger loans. FDIC conducted a smalldollar loan pilot program that resulted in a template for small-dollar 

loans that included a streamlined underwriting system enabling banks 

to issue a loan decision within 24 hours of a loan application.7

One participant in our industry discussion group stated that 

streamlining underwriting requirements would help banks automate 

underwriting processes and lower costs. However, several 

participants in our advocacy discussion group did not support 

streamlining underwriting requirements because it could be 

considered deregulation. Several participants added that regulation is 

necessary to ensure safe and sound lending and therefore long-term 

benefits for everyone.

One participant in our nonfederal banking regulator discussion group 

suggested using alternative data sources for underwriting because 

 

5Financial institutions are subject to safety and soundness examinations. These 

examinations generally assess a bank’s soundness, determine the level of risk involved in 

the bank’s transactions and activities, and ascertain the extent of compliance w ith banking 

law s and regulations.

6N. Bourke, “Regulators Should Let Banks Get Back to Small-Dollar Loans,” September 

16, 2015, accessed on July 31, 2017, 

https://w ww.americanbanker.com/opinion/regulators-should-let-banks-get-back-to-smalldollar-loans.

7FDIC conducted a small-dollar loan pilot program from 2007 through 2009 designed to 

illustrate how banks can profitably offer affordable small-dollar loans as an alternative to 

high-cost credit products such as payday loans and fee-based overdraft programs. The 

pilot program resulted in a template for small-dollar loans: low or no-fee loans of $2,500 or 

less, w ith a term of 90 days or more, an APR of 36 percent or less, and a streamlined 

underw riting system enabling banks to issue a loan decision w ithin 24 hours of a loan 

application.
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

there are individuals who do not have a traditional credit history. For 

example, this participant noted that using utility and phone bill 

payment history, or a referral system where one person vouches for 

the credit worthiness of another, have worked in some instances. 

However, another participant cautioned that using alternative data 

could lead to fair lending concerns, depending on which variables 

were used to determine access to credit. Another participant 

elaborated, stating that using alternative data to make credit 

underwriting decisions could be a concern if the variables used are 

correlated with race, national origin, or any other prohibited areas.

One federal banking regulator expressed concern that easing 

underwriting regulations could be perceived as undermining safety 

and soundness. Further, one Office of the Comptroller of the Currency 

(OCC) official noted that the agency had already sought comments 

from the public on issuing a special-purpose charter for non-deposit 

taking institutions to allow them to offer products that use online 

underwriting techniques to expand the type of borrowers who could 

qualify for certain products.

Page 99 GAO-18-244 Community Reinvestment Act

8 One participant in our federal banking 

regulator discussion group stated that offering a non-depository 

charter could make loan markets more efficient and broaden them to 

allow for servicing of nontraditional consumers.

· Allowing higher interest rates. One industry representative noted 

that loans to LMI borrowers tend to be less profitable and riskier than 

others, so a higher interest rate is warranted. Several stakeholders 

suggested allowing banks to charge an interest rate above the 36 

percent perceived cap on small-dollar loans.9 For example, one article 

stated that easing the 36 percent APR upper limit (cap) may prompt 

more banks to provide small-dollar loans to higher-risk consumers 

 

8OCC’s special-purpose charter w ould allow OCC to grant a special-purpose national 

bank charter to a financial technology, or “fintech,” company. Fintech subsectors such as 

marketplace lending and mobile payments may provide consumers w ith additional options 

for accessing credit and banking services. For more information, see GAO, Financial 

Technology: Information on Subsectors and Regulatory Oversight, GAO-17-361 

(Washington, D.C.: Apr. 19, 2017).

9CFPB’s new rule subjects to certain penalty fee provisions longer-term loans w ith interest 

rates above 36 percent that give the lender account access. The implication this has for 

banks’ w illingness to make small-dollar loans is not yet know n.
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

that rely on products from alternative financial services providers.

Page 100 GAO-18-244 Community Reinvestment Act

10

According to representatives from a think tank we interviewed, banks 

have told them that the small-dollar loans currently receiving CRA 

credit are not profitable and therefore not viable because of the low 

interest rates (below 36 percent APR) they would have to charge. For 

example, the think tank representatives observed that a small-dollar 

loan with an effective APR of 75 percent would still be far less costly 

to borrowers than many payday loans and would have smaller fees.

One participant in our industry discussion group believed regulators 

would view a small-dollar loan with a high interest rate for LMI 

borrowers unfavorably. Another participant stated that even if 

regulators made such a change, it may not result in increased 

offerings of small-dollar loan products. Additionally, a report from a 

consumer advocacy organization argued that an interest rate cap at 

36 percent would incentivize lenders to offer loans with longer term 

structures and avoid making loans that borrowers cannot repay.11

Several participants in our advocacy discussion group did not support 

allowing higher interest rates because it could be construed as 

deregulation.

Federal banking regulator officials said that they considered interest 

rates for individual products on a case-by-case basis, and did not 

discount the possibility of giving CRA consideration for loans with 

interest rates above 36 percent. However, during its small-dollar loan 

pilot program from 2007 through 2009, FDIC anticipated most 

programs would be consistent with its Affordable Small-Dollar Loan 

Guidelines that required interest rates no greater than 36 percent, 

although participating financial institutions had some flexibility to 

encourage innovation.12 This pilot was designed to illustrate how 

 

10S. M. McKernan, C. Ratcliffe, and D. Kuehn, “Prohibitions, price caps, and disclosures: A 

look at state policies and alternative financial product use,” Journal of Economic Behavior 

& Organization, vol. 95 (2013). Alternative financial services providers include transaction 

providers such as check cashing outlets and money transmitters and credit providers such 

as payday loan stores, automobile title lenders, and paw nshop lenders.

11National Consumer Law Center, Why 36%? The History, Use, and Purpose of the 36% 

Interest Rate Cap (Washington, D.C.: April 2013).

12See Federal Deposit Insurance Corporation, “A Template for Success: The FDIC’s 

Small-Dollar Loan Pilot Program,” FDIC Quarterly, vol. 4, no. 2 (2010). The pilot’s 

definition of small-dollar loans w as consistent w ith small-dollar loan guidelines that FDIC 

had issued in 2007. See Federal Deposit Insurance Corporation, “Affordable Small-Dollar 

Loan Products: Final Guidelines,” Financial Institution Letter (FIL)-50-2007 (Washington, 

D.C.: June 19, 2007).
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

financial institutions can profitably offer affordable small-dollar loans 

as an alternative to high-cost credit products such as payday loans 

and fee-based overdraft programs.

Page 101 GAO-18-244 Community Reinvestment Act

13

· Minimizing compliance risk. Stakeholders explained how minimizing 

compliance risk—risk arising from violations of, or nonconformance 

with, laws, rules, and regulations—would allow banks to offer 

profitable and safe small-dollar loans. For example, representatives 

from a think tank stated that financial institutions would not make 

small-dollar loans if they have to be fully underwritten, citing exposure 

to compliance risk. Additionally, FDIC’s 2011 survey of financial 

institutions’ efforts to serve the unbanked and underbanked found that 

35 percent of institutions cited regulatory requirements as a major 

obstacle in serving unbanked and underbanked consumers and an 

additional 30 percent cited them as a minor obstacle; 35 percent of 

these institutions reported fair lending/compliance as a major obstacle 

in offering financial products and services to underserved 

consumers.14

One participant in our think tank discussion group discussed how 

giving financial institutions more flexibility in determining how best to 

meet the needs of their customers, as opposed to having regulators 

be more prescriptive via regulation, would help avoid some of the 

heavy costs that can come with additional financial regulations. 

Another participant discussed how safety and soundness examiners 

and CRA examiners may have differing views on the safety of such 

loans, so it would be important to ensure consistency within the 

federal banking regulators to mitigate these concerns.

Several stakeholders discussed the idea of allowing banks to innovate 

in a safe and sound manner. For example, one participant in our think 

tank discussion group stated that compliance risk could be minimized 

by ensuring banks were protected under “safe harbor” rules that 

allowed them to experiment with different products and delivery 

methods without repercussions from regulators as long as they 

 

13The pilot defined small-dollar loans as low or no-fee loans of $2,500 or less, with a term 

of 90 days or more, an APR of 36 percent or less, and a streamlined underw riting system 

enabling financial institutions to issue a loan decision within 24 hours of a loan application. 

In general, the new CFPB rule imposes “ability-to-repay” requirements on loans w ith a 

duration of 45 days or less or longer-term loans w ith a balloon payment.

14Federal Deposit Insurance Corporation, “2011 FDIC Survey of Banks’ Efforts to Serve 

the Unbanked and Underbanked” (Washington, D.C.: December 2012).
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

adhere to the regulatory guidelines. However, one participant in our 

advocacy discussion group noted that guidance from regulators about 

the level of innovation appropriate at a particular financial institution 

often lacks safe harbor language. Further, a participant in our think 

tank discussion group noted that CFPB staff do not always want to 

issue no-action letters.

Page 102 GAO-18-244 Community Reinvestment Act

15

 

15CFPB staff, at their discretion, can issue no-action letters to specific applicants in 

instances involving innovative financial products or services that promise substantial 

consumer benefit w here there is substantial uncertainty w hether or how specific provisions 

of statutes implemented or regulations issued by the Bureau w ould be applied (for 

example if, because of intervening technological developments, the application of statutes 

and regulations to a new product is novel and complicated).
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

Other Suggested Options Unrelated to CRA That Address 

Page 103 GAO-18-244 Community Reinvestment Act

Serving LMI Consumers

According to knowledgeable stakeholders, additional options not related 

to CRA could further encourage financial institutions to provide basic 

banking services and small-dollar, nonmortgage consumer loans in LMI 

areas. Such options include encouraging partnerships that promote basic 

banking services and small-dollar, nonmortgage consumer loans and 

sharing leading practices.

Encouraging Financial Institutions to Take Advantage of Existing 

Options

In the literature we reviewed and interviews, stakeholders suggested 

ways that financial institutions could take advantage of existing options to 

increase the number of basic banking services and small-dollar, 

nonmortgage consumer loans. Existing options include:

· Creating loan pool consortiums or guarantees. One stakeholder 

suggested loan pool consortiums as one way institutions could reduce 

overhead costs and help share risk.16 Further, representatives of an 

advocacy organization suggested creating a loan pool consortium that 

provides small-dollar loans on a large volume to reduce overhead 

costs to individual banks and share the credit risks. Further, in its 

assessment of its small-dollar loan pilot program, FDIC noted that the 

creation of pools of non-profit or government operating funds to serve 

as “guarantees” for safe small-dollar loan programs could increase the 

availability and accessibility of such products.17 The assessment 

stated that several existing small-dollar loan programs feature 

guarantees in the form of loan loss reserves or linked, low-cost 

deposits provided by government bodies or philanthropic groups. 

FDIC’s report also noted these guarantees provide important 

assurances to financial institutions that are interested in offering 

small-dollar loans but are concerned about the costs of doing so.

 

16A loan consortium is formed by the joining of tw o or more financial institutions to invest in 

a pool of funds and make loans to a borrow er using participation loans or lines of credit. 

Investors in a loan consortium share the costs and risks of lending. Each investor allow s a 

prorated draw based on its respective commitment amount and shares any losses 

proportionally.

17Federal Deposit Insurance Corporation, “A Template for Success: The FDIC’s SmallDollar Loan Pilot Program.” 
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

· Focusing on relationship banking. Several stakeholders stated that 

banks should consider making small-dollar, nonmortgage consumer 

loans to develop long-term relationships with borrowers. For example, 

the Center for Financial Services Innovation has written that lenders 

should prioritize long-term relationships that small-dollar loans can 

generate over short-term profits that may not be attainable.

Page 104 GAO-18-244 Community Reinvestment Act

18 It noted 

that while creating small-dollar loans that are both affordable and 

profitable can be challenging, developing such products will allow 

lenders to establish and strengthen relationships with new and 

existing customers who may return for additional products and 

services over time. Additionally, bankers who participated in FDIC’s 

small-dollar loan pilot program indicated that they primarily used 

small-dollar loans to build or retain profitable, long-term relationships 

with consumers.19

Several of our discussion group participants supported the idea of 

relationship banking. One participant in our industry discussion group 

mentioned that one successful model is the character loan—a good 

faith (unsecured) loan based on the borrower’s financial position, 

reputation in the community, and his or her payment history with the 

same or other bank(s). This participant noted character lending is a 

worthwhile model because the bank can get credit within the 

community for offering such loan products. A participant in our 

nonfederal banking regulator discussion group explained that the 

National Credit Union Administration’s (NCUA) payday-alternative 

loan is popular and successful in achieving its goal of helping build 

credit and move people into a traditional financial institution who 

previously were not a part of mainstream finance or in an existing 

banking relationship.20 If a short-term, small amount loan borrower 

has no prior relationship with the credit union, there is a greater risk 

that the borrower may walk off with unsecured cash and never return. 

However, under the payday-alternative loan program, NCUA has 

found that if the borrower is a member of the credit union for a 

 

18Center for Financial Services Innovation, “Designing High-Quality, Small-Dollar Credit: 

Insights from CFSI’s Test & Learn Working Group” (Chicago, IL: 2015).

19Federal Deposit Insurance Corporation, “A Template for Success: The FDIC’s SmallDollar Loan Pilot Program.” 

20NCUA regulations permit federally-chartered credit unions to make payday-alternative 

loans. Payday-alternative loans have a mandated interest rate cap that is 1000 basis 

points above the maximum interest rate cap established by the NCUA Board for all other 

federal credit union loans. The payday-alternative loan interest rate cap is currently 28 

percent.
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

minimum of one month before receiving a short-term small loan, this 

will reduce the chance of default.

· Offering lower-risk accounts. In a letter to the 25 largest retail 

banks in the U.S., CFPB encouraged these banks to provide lowerrisk accounts to all consumers, including underserved populations. 

Specifically, CFPB encouraged these banks to offer products that are 

designed not to authorize overdrafts and that do not charge overdraft 

fees. CFPB took this step due to concerns that consumers were being 

sidelined by the lack of account options. Although a number of 

institutions had introduced “no-overdraft” accounts and offered them 

alongside more common checking account products, it found in a 

review of the top retail banking websites that nearly half did not 

appear to offer any deposit account that ensures consumers cannot 

overspend. It concluded that such a product would give consumers an 

opportunity to choose an account that helps them avoid overdrafting.

· Implementing technological solutions. Stakeholders suggested 

that lenders adopt technological solutions such as software platforms 

that enable the lender to process applications for financial products 

more efficiently, thereby reducing costs and increasing speed. For 

example, the Center for Financial Services Innovation noted in a 

paper on designing high-quality, small-dollar credit that profit margins 

of small-dollar loans are relatively low, so lenders must find ways to 

responsibly reduce cost.

Page 105 GAO-18-244 Community Reinvestment Act

21 It also stated that adopting technology 

solutions and streamlining the application process would allow 

providers to do this, while yielding faster processing times for 

borrowers. A former FDIC chair agreed and told us that financial 

institutions should be allowed to use technology to determine loan 

repayability. FDIC’s report on its small-dollar loan pilot program 

suggested further study on such technologies.22

· Increasing marketing. Stakeholders described how additional 

marketing could be used to increase the number of small-dollar loans 

and basic banking services. The Center for Financial Services 

Innovation noted that lenders should use creative marketing to 

achieve critical mass in new customers.23 They explained in addition 

 

21Center for Financial Services Innovation, “Designing High-Quality, Small-Dollar Credit: 

Insights from CFSI’s Test & Learn Working Group.” 

22Federal Deposit Insurance Corporation, “A Template for Success: The FDIC’s SmallDollar Loan Pilot Program.” 

23Center for Financial Services Innovation, “Designing High-Quality, Small-Dollar Credit: 

Insights from CFSI’s Test & Learn Working Group.”
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

to reducing operational costs through automation, lending at high 

volumes can be fundamental to covering costs and maintaining profits 

over time. The Center for Financial Services Innovation further 

described how pursuing innovative marketing strategies—such as 

targeted messaging campaigns and partnerships with community 

organizations—can help institutions attract new customers. 

Additionally, CFPB noted in its letter to the top 25 retail banks on 

lower-risk checking accounts that the lack of marketing for these 

products, in particular, had lessened their visibility and lowered their 

use among consumers who might otherwise benefit from their 

availability. Thus, the agency urged institutions that already offered 

such accounts to feature them among their standard account offerings 

both in their branches and online. However, one participant in our 

industry discussion group explained that one problem with creative 

marketing is that it is expensive and thus would cut into the 

profitability of small-dollar loans. Instead, institutions have relied on 

cheaper word of mouth advertising or marketing within branches.

As noted previously, some stakeholders stated that while changes to 

CRA could help encourage financial institutions to provide more basic 

banking services and small-dollar loans, they may not be enough to 

overcome bigger concerns about profitability and safety and 

soundness. Some stakeholders said the same about taking 

advantage of existing options. For example, one participant in our 

think tank discussion group noted that there are a lot of existing 

options for small-dollar loans, but banks have concerns about 

profitability and negative repercussions from their prudential 

regulators. Similarly, a participant in our nonfederal banking regulator 

discussion group had heard from individuals at community banks and 

credit unions that although certain financial institutions such as credit 

unions and community banks are making small-dollar loans on a small 

scale to assist their customers, they are not doing so on a large scale 

because such loans do not generate a profit.

Page 106 GAO-18-244 Community Reinvestment Act
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

FDIC has issued guidance to inform institutions of risks related to 

deposit advance products.

Page 107 GAO-18-244 Community Reinvestment Act

24 In that guidance, FDIC noted that a 

number of financial institutions were currently offering reasonably 

priced small-dollar loans at reasonable terms to their customers and 

encouraged institutions to develop new or innovative programs to 

meet the need for small-dollar credit in a safe and sound manner.

Encouraging Partnerships That Promote Basic Banking Services 

and Small-Dollar Loans

In the literature we reviewed and interviews, stakeholders suggested that 

regulators could encourage financial institutions to enter into partnerships 

with other entities that promote accessible and affordable basic banking 

services and small-dollar, nonmortgage consumer loans. Suggested 

options include:

· Encouraging partnerships between financial institutions and 

community groups. Stakeholders noted that partnerships between 

financial institutions and community groups can help promote 

checking and savings account ownership and small-dollar loans. In an 

FDIC survey, community outreach collaborations were identified as 

the most effective strategy for developing relationships with 

underserved populations.25 Additionally, pilot bankers participating in 

FDIC’s small-dollar loan pilot program reported that partnerships with 

community groups were crucial to the success of their programs.26

Among other things, the bankers noted that these partnerships can 

serve as an incentive to banks by providing client referrals and the 

 

24A deposit advance product is a small-dollar, short-term loan or line of credit that a bank 

makes available to a customer w hose deposit account reflects recurring direct deposits. 

The customer obtains a loan, w hich is to be repaid from the proceeds of the next direct 

deposit. These loans typically have high fees, are repaid in a lump sum in advance of the 

customer’s other bills, and often are not subject to fundamental and prudent banking 

practices through w hich a bank can determine the customer’s ability to repay the loan and 

meet other necessary financial obligations. FDIC and OCC issued guidance on the use of 

deposit advance products. OCC rescinded it upon the release of the new CFPB 

regulations, but the FDIC guidance remains in effect.

25Federal Deposit Insurance Corporation, “2011 FDIC Survey of Banks’ Efforts to Serve 

the Unbanked and Underbanked.” FDIC asked institutions to identify the most effective 

marketing channel. Among all banks surveyed, 38.5 percent selected community outreach 

collaborations. Other options included new spapers, brochures, or other print advertising; 

direct mail; billboard advertising/signage outside of branches; and TV or radio advertising.

26Federal Deposit Insurance Corporation, “A Template for Success: The FDIC’s SmallDollar Loan Pilot Program.” 
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

opportunity for other parties to share in program costs. In addition, 

one participant in our think tank discussion group stated that 

partnerships with community organizations might be a useful way to 

promote banks that have no-overdraft accounts and thus help bring 

people back into the banking system.

One participant in our advocacy discussion group pointed to FDIC’s 

safe account pilot as an example of a good partnership.

Page 108 GAO-18-244 Community Reinvestment Act

27 Under the 

pilot, participating financial institutions partnered with nonprofit 

organizations, community groups, businesses, and local or state 

government agencies and officials to conduct outreach and market 

safe accounts to underserved consumers. In its final report on the 

pilot, FDIC noted that pilot institutions found partnerships to be 

particularly useful in reaching the targeted unbanked and 

underbanked consumers.28

However, multiple participants in our industry discussion group noted 

that banks that partner with nonprofit organizations have sometimes 

been unable to maintain the volume of business necessary to make 

small-dollar loans profitable.

· Encouraging partnerships between banks and credit unions.

Encouraging partnerships between banks and credit unions was 

suggested by one stakeholder as a way to encourage financial 

institutions to increase access to basic banking services and smalldollar, nonmortgage consumer loans. Officials from an industry group 

representing credit unions described how the cost of providing basic 

banking services and small-dollar lending is a challenge for financial 

institutions because there are overhead and operating costs 

associated with these services. They noted that this challenge may be 

overcome through partnerships between banks and credit unions. As 

an example, they cited a product called Borrow and Save, which 

provides borrowers with access to small-dollar credit opportunities 

that are affordable and cost less than alternative loan options and 

help borrowers strengthen their financial condition with a required 

savings component.

 

27On January 1, 2011, FDIC launched a 1-year pilot program, the Model Safe Accounts 

Pilot, w ith nine financial institutions to determine the feasibility of offering safe, low-cost 

transaction and basic savings accounts (safe accounts) to help meet the needs of

underserved and LMI consumers.

28Federal Deposit Insurance Corporation, FDIC Model Safe Accounts Pilot: Final Report

(Washington, D.C.: April 2012).
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

Additionally, a participant in our nonfederal banking regulator 

discussion group agreed that bank-credit union partnerships could be 

useful, noting that credit unions do not operate under the same 

regulatory constraints banks do and can thus reach populations or 

offer products that might not be possible for banks.

· Encouraging partnerships between financial institutions and 

community development financial institutions (CDFI).Several 

stakeholders suggested partnerships with CDFIs as a way to increase 

small-dollar loans.

Page 109 GAO-18-244 Community Reinvestment Act

29 Specifically, a U.S. Treasury Department white 

paper suggested that online marketplace lenders should partner with 

CDFIs to offer loans to LMI communities.30 The white paper noted that 

through partnerships, CDFIs may be able to utilize online marketplace 

lenders’ underwriting technology and back-end operations to increase 

efficiencies and lower costs. Further, the white paper theorized that 

online marketplace lenders could, in turn, tap into the local knowledge 

and understanding of credit markets of CDFIs to reach more 

borrowers in distressed communities.

A participant in our industry discussion group discussed how 

partnerships could help larger banks serve communities they might 

otherwise be unable to reach. In particular, the participant noted that 

CDFIs have emerged as a method of extending reach and offloading 

cost and risk to make the banking system work better for the 

customer. One participant in our nonfederal banking regulator 

discussion group noted that the CDFI Fund is an example of a 

successful partnership model that helps provide products and 

services in LMI communities.31 However, a participant in our industry 

discussion group explained that while CDFIs extend reach and offload 

risk, they have limited capacity so they must be careful not to 

overextend themselves.

 

29CDFIs expand economic opportunity in low -income communities by providing access to 

financial products and services for local residents and businesses. They can be banks, 

credit unions, loan funds, microloan funds, or venture capital providers.

30U.S. Department of the Treasury, “Opportunities and Challenges in Online Marketplace 

Lending” (Washington, D.C.: May 20, 2016). Marketplace lenders connect consumers and 

small businesses seeking online and timelier access to credit w ith individuals and 

institutions seeking profitable lending opportunities.

31Through financial and technical assistance, the CDFI Fund supports CDFIs. 
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

Participants in our advocacy discussion group noted that encouraging 

partnerships between financial institutions and other entities might have 

unintended results. For example, one participant noted that banks often 

partner with payday lenders and tax providers to make refund anticipation

loans that may be abusive. Another stated that while there are many 

responsible fintech companies, some fintech companies bring abusive 

financial products and practices to market. In addition, one participant in 

our nonfederal banking regulator discussion group noted safety and 

soundness examiners sometimes do not understand financial institution 

partnerships with CDFIs. While a financial institution may enter into such 

a partnership to deliver products and services that help them receive CRA 

credit, the institution’s safety and soundness examiner may not 

understand how the relationship fits into the institution’s business model. 

Another participant explained that regulators might disagree with the idea 

of encouraging partnerships with marketplace lenders because such 

lending is not a proven business model.

Two federal banking regulator officials mentioned that their agency is 

already encouraging partnerships, through publications describing best 

practices around partnerships, issuance of guidelines, advisory 

committees, and convening coalitions of bankers, community 

organizations, and agencies. Additionally, partnerships are already 

considered under CRA, particularly for large institutions under the 

investment test and intermediate small institutions under the community 

development test. For example, financial institutions may receive credit 

on the investment test for investments, loan participations, and other 

ventures undertaken in cooperation with minority- or women-owned 

financial institutions and low-income credit unions. Additionally, 

institutions can receive CRA credit for partnerships with nonprofit 

organizations that offer financial counseling or other community 

development services to LMI communities.

Sharing Leading Practices to Encourage Basic Banking Services 

Page 110 GAO-18-244 Community Reinvestment Act

and Small-Dollar Loans

In the literature we reviewed, interviews, and discussion groups, 

stakeholders suggested that regulators could share leading practices to 

encourage banks to provide more basic banking services and smalldollar, nonmortgage consumer loans. For example, in comments on 

recent proposed changes to the Interagency Questions and Answers 

Regarding Community Investment (CRA Q&A), one advocacy 
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

organization stated that federal banking regulators should create a 

clearinghouse for CRA-related innovations.

Page 111 GAO-18-244 Community Reinvestment Act

32 A participant in our 

advocacy discussion group noted that by highlighting programs and 

innovations, regulators would be providing a backdoor safe harbor that 

would alleviate bank sensitivities to regulatory, reputational, and financial 

loss risks. Another participant stated that sharing information about 

successful programs like the North Carolina credit union program that are 

profitable and sustainable would be helpful.33

One participant in the advocacy discussion group stated that information 

sharing does not always lead to improved results. The participant cited 

FDIC’s small-dollar loan pilot as an example, stating that the agency 

shared the results of the pilot with its member banks but this did not result 

in many new small-dollar loan products being offered. Another participant 

noted that some practices are not replicable on a large scale.

The federal banking regulators have recognized the value of leading 

practices and shared some. In its assessment of its small-dollar loan pilot 

program, FDIC suggested that one way to encourage more financial 

institutions to offer small-dollar loans was to share the results from 

successful programs.34 For example, it highlighted that safe, affordable, 

and feasible small-dollar lending does occur in mainstream financial 

institutions; that small-dollar lending can be part of a foundation for 

creating profitable relationships; and that defaults on these loans are 

similar to defaults on other types of unsecured credit. Finally, participants 

in the federal banking regulator discussion group noted that the regulators 

have shared leading practices at their bi-annual National Interagency 

Community Reinvestment Conference hosted by the Board of Governors 

of the Federal Reserve System (FRB), FDIC, OCC, and the CDFI Fund. A 

 

32The CRA Q&As provide guidance on CRA examinations to financial institutions and the 

public. They w ere updated in July 2016. 81 Fed. Reg. 48506 (July 25, 2016).

33In 2001, the North Carolina State Employees’ Credit Union began offering a payday loan 

alternative program know n as the Salary Advance Loan program after noticing increased 

use of payday loans by its members. The program offers a revolving loan, w ith a 

maximum outstanding balance of $500, offered at an APR of 12 percent. Thus, on a $500, 

2-w eek loan, the charge is less than $2.50. The loans must be repaid in full on the 

borrow er’s next payday through automatic deduction. Since the program’s inception, the 

credit union has made a total of $305,405,278 in loans, generating $1,919,097 in interest 

income, w hile experiencing $707,474 in net charge-offs and earning an estimated return 

of 7.76 percent.

34Federal Deposit Insurance Corporation, “A Template for Success: The FDIC’s SmallDollar Loan Pilot Program.” 
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

participant in the nonfederal banking regulator discussion group noted 

these conferences provide many valuable resources.

Offering Financial Incentives to Encourage Basic Banking Services 

Page 112 GAO-18-244 Community Reinvestment Act

and Small-Dollar Loans

In the literature we reviewed and interviews, stakeholders suggested that 

federal and state governments could offer financial incentives to 

encourage banks to provide basic banking services and small-dollar, 

nonmortgage consumer loans. Suggested options include:

· Providing financial subsidies. Stakeholders recommended financial 

subsidies as a way to encourage provision of basic banking services 

and small-dollar loans. For example, one article noted that efforts by 

banks to expand access to credit in LMI communities are costly, 

resulting in a lower profit margin or even a net loss, and suggested 

that the government consider providing incentives to offset these low 

margins.35 Representatives from an industry group additionally 

suggested that the government could promote tax credits.

Several discussion group participants expressed support for 

government subsidies to offset low profit margins. For example, one 

participant in our advocacy discussion group explained that having 

access to low-cost capital or grant funds—such as the CDFI Fund—

has been a major catalyst for innovation in the small-dollar lending 

arena. Another participant noted small-dollar loans are difficult to 

make profitably, and a subsidy or tax break for financial institutions 

that make them might encourage more such loans. A participant in 

our industry discussion group noted that her bank received CDFI 

Fund awards that helped support the launch of its small-dollar loan 

programs. Similarly, two participants explained that while subsidies 

are not a long-term solution, they can be a useful way to help an 

institution initiate small-dollar loan programs.

However, other discussion group participants expressed reservations 

about both the sustainability and likelihood of this option. For 

example, two participants in the industry discussion group noted 

although this change would have the most impact, it was very unlikely 

 

35M. Willis, “It’s the Rating, Stupid: A Banker’s Perspective on the CRA,” in Revisiting the 

CRA: Perspectives on the Future of the Community Reinvestment Act (Boston and San 

Francisco: A Joint Publication of the Federal Reserve Banks of Boston and San 

Francisco, 2009), 59-70.
Appendix IV: Additional Information on 

Options That Could Further Encourage 

Banking Serv ices and Small-Dollar Loans

to be implemented and would be difficult to sustain. Another 

participant felt that not only was it not sustainable but it was also not 

an appropriate policy because not every product and service an 

institution offers must be profit maximizing or profitable.

In addition, several stakeholders suggested that local and state 

legislative incentives have generally been ineffective in encouraging 

financial institutions to offer more loans. For example, a participant in 

our advocacy discussion group explained that a legislative 

requirement for a safe account was ineffective largely due to lack of a 

data reporting requirement. In addition, a participant in our nonfederal 

banking regulator discussion group explained that while there have 

been efforts in places like Philadelphia, San Diego, and Cleveland to 

encourage financial institutions to lend to LMI individuals in exchange 

for receiving deposits from the government, in at least one case (New 

York City) these incentives were found to be unconstitutional. Finally, 

in regards to offering financial incentives, one federal banking 

regulatory official told us it would seemingly be a conflict of interest for 

regulators to both oversee financial institutions’ CRA activities as well 

as offer them financial incentives to improve their CRA performance.

· Granting relief or imposing penalties based on CRA ratings. One 

paper stated that given the consolidation in the financial services 

industry, the penalties for noncompliance with CRA should be 

revised.

Page 113 GAO-18-244 Community Reinvestment Act

36 Possibilities it noted were charging non-compliant 

institutions penalty rates on loans from the discount window or 

charging fines as a penalty for non-compliant institutions. 

Alternatively, another paper stated that banks that achieve an 

Outstanding CRA rating could be allowed some sort of financial 

(perhaps lower deposit insurance premiums) or regulatory relief (such 

as more time between CRA examinations).37

 

36L. Cohen and R. Agresti, “Expanding the CRA to All Financial Institutions,” 134-137.

37M. Willis, “It’s the Rating, Stupid: A Banker’s Perspective on the CRA,” 59-70.
Appendix V: Comments from the Department 

of the Treasury

Page 114 GAO-18-244 Community Reinvestment Act

Appendix V: Comments from the 

Department of the Treasury
Appendix V: Comments from the Department 

of the Treasury

Page 115 GAO-18-244 Community Reinvestment Act
Appendix VI: GAO Contact and Staff 

Acknowledgments

Page 116 GAO-18-244 Community Reinvestment Act

Appendix VI: GAO Contact 

and Staff Acknowledgments

GAO Contact

Alicia Puente Cackley, (202) 512-8678 or cackleya@gao.gov

Staff Acknowledgments

In addition to the contact named above, Paige Smith (Assistant Director); 

Deena Richart (Analyst in Charge); Lawrence Crockett, David Dornisch, 

Jonathan Harmatz, Gina Hoover, Angela Kaylor, Courtney LaFountain, 

John McGrail, Jon D. Menaster, and Jim Vitarello made key contributions 

to this report. Also contributing were Robert Letzler, John Mingus, Dae 

Park, Tovah Rom, and Jena Y. Sinkfield.
Appendix VII: Accessible Data

Page 117 GAO-18-244 Community Reinvestment Act

Appendix VII: Accessible 

Data

Data Tables

Accessible Data for Figure 1: Number of Bank Branches, Credit Union Branches, 

and Alternative Financial Services (AFS) Establishments Nationwide, 2005 through 

2010

Year Number of Bank 

Branches

Number of AFS 

Establishments

Number of Credit 

Union Branches

2005 91.404 30.442

2006 94.102 31.693

2007 96.624 35.298

2008 98.527 34.669

2009 98.943 32.243

2010 97.954 29.749

2011 97.669 28.545 22.728

2012 96.826 30.288 22.223

2013 95.843 29.489 21.888

2014 94.263 29.95 21.849

2015 92.825 30.396 21.805

2016 91.445 21.733

Source: GAO analysis of Federal Deposit Insurance Corporation, National Credit Union Administration, and Census data. GAO-18-244

Accessible Data for Figure 4: Evaluation of Retail Banking Services by CRA 

Examination Type

Service testaCommunity development testb Optional reviewc
Appendix VII: Accessible Data

Page 118 GAO-18-244 Community Reinvestment Act

Service testaCommunity development testb Optional reviewc

Factors considered Examiners evaluate retail 

banking services including:

● Geographic  distribution  of 

branches in low -, moderate-, 

middle-, and upper-income 

areas

● Branch hours of operation

● Loan and deposit products 

offered

● Branch openings and 

closings

● Alternative delivery systems, 

such as automated  teller 

machines  (ATM)

Examiners  evaluate  the extent to 

w hich the financial institution 

provides community  development 

services through  branches and 

other facilities in low - and 

moderateincome  (LMI)  areas.

If an institution  chooses, 

examiners  review  its 

performance in providing

branches and other services 

and delivery systems that 

enhance credit availability  in its 

assessment area(s). 

Performance  w ith respect to 

services may  be used to 

enhance an institution’s  overall 

rating of “Satisfactory.” Factors 

considered include:

● Number  of branches and 

ATMs

● Number  of branches and 

ATMs in LMI  geographies 

compared  to other geographies

● Type and level of services 

provided at branches and by 

ATMs and alternative  delivery 

systems

● Branch openings and closings

Examination  type: Small 

institution

This area is addressed during 

this examination  type

Examination  type: Intermediate 

small  institution

This area is addressed during this 

examination  type

Examination  type: Large 

institution

This area is addressed during 

this examination  type

Source: GAO analysis of Community Reinvestment Act examination procedures. GAO 18-244

Accessible Data for Figure 5: Evaluation of Small-Dollar, Nonmortgage Consumer

Loans by CRA Examination Type

Under the lending test as an 

innovative or flexible lending 

practice

Under the lending test based 

on loan volume or emphasisa

Optional review

Factors considered Examiners  can consider smalldollar,  nonmortgage  consumer 

loans as an example  of an 

innovative  or flexible lending 

practice that, w hen present, 

can enhance  a financial 

institution’s  rating.

Examiners  may  evaluate these 

loans at large institutions  if 

consumer  lending  comprises a 

substantial  majority  of the 

institution’s  business. Examiners 

may evaluate  these loans at small 

and intermediate  small  institutions 

if consumer loans constitute  a 

major  product line.

If an institution  so chooses and 

has collected  and maintained 

required data,  examiners  w ill 

evaluate  small-dollar, 

nonmortgage  consumer  loans.

Examination  type: Small 

institution

This area is addressed during this 

examination  type

This area is addressed during 

this examination  type

Examination  type: Intermediate 

small  institution

This area is addressed during this 

examination  type

This area is addressed during 

this examination  type
Appendix VII: Accessible Data

Page 119 GAO-18-244 Community Reinvestment Act

Under the lending test as an 

innovative or flexible lending 

practice

Under the lending test based 

on loan volume or emphasisa

Optional review

Examination type: Large 

institution

This area is addressed during 

this examination type

This area is addressed during this 

examination type

This area is addressed during 

this examination type

Source: GAO analysis of Community Reinvestment Act examination procedures. GAO 18-244

Accessible Data for Figure 6: Evaluation of Support for Community Development by 

CRA Examination Type

Lending test Investment test Service testbCommunity 

development testc

Optional review

Factors 

considered

Examiners evaluate:

• Number  and 

amount of 

community

development loans

• Responsiveness  to

opportunities  for

Community

development  lending

Examiners  evaluate:

• Number  and dollar

amount  of qualified

investmentsa

• Innovativeness  and

complexity  of 

qualified investments

• Degree  to w hich 

these qualified 

investments are not 

routinely provided by 

other private 

investors

• Responsiveness  of

qualified  investments

to available

opportunities

Examiners 

evaluate:

• Extent  to w hich 

the institution 

provides

community

development 

services

• Innovativeness 

and

responsiveness of

community

development 

services

• Range  and

accessibility of

community

development 

services provided  in 

low -, moderate-, 

middle-, and upperincome

geographies

Examiners  evaluate:  • 

Number  and amount 

of community 

development  loans 

and qualified 

investments

• Extent  to w hich the 

institution  provides 

community 

development  services, 

including  the provision 

and availability  of 

services to low - and 

moderate-income 

individuals

• Institution’s 

responsiveness to 

opportunities  for 

community 

development  lending, 

qualified  investments, 

and community 

development  services

If an institution 

chooses, examiners 

w ill review  its qualified 

investments  to

determine  if they

enhanced  credit

availability  in its

assessment area and

the institution’s  record 

of making  such

investments.

Performance  w ith

respect to qualified

investments  may  be

used to enhance an

institution’s  overall

rating of “Satisfactory.”

Examination  type: 

Small  institution

This area is addressed 

during this 

examination  type

Examination  type: 

Intermediate  small 

institution

This area is 

addressed during this 

examination  type

Examination  type: 

Large institution

This area is 

addressed during 

this examination 

type

This area is 

addressed during 

this examination  type

This area is 

addressed during 

this examination 

type

Source: GAO analysis of Community Reinvestment Act examination procedures. GAO 18-244
Appendix VII: Accessible Data

Agency Comment  Letter

Page 120 GAO-18-244 Community Reinvestment Act

DEPARTM ENT OF THE TREASURY

WASHINGTON, D.C. 20220

January 12, 2018

Alicia Puente Cackley Director

Financial Markets and Community Investment 

U .S. Government Accountability Office

441 G Street NW 

Washington , DC 20548

Dear Ms. Puente Cackley :

Thank you for the opportunity to review the draft report entitled 

Community Reinvestment Act (the Report). This letter provides the 

official response of the Department of the Treasury (Treasury).

The Report recommends that Treasury consider the options outlined in 

the Report as part of Treasury's review of the Community Reinvestment 

Act framework. Treasury accepts the recommendation and will consider 

the options outlined in the Report.

Thank you once again for the opportunity to review the Report. We look 

forward to continuing to work with your office in the future.

Christopher Campbell 

Assistant Secretary 

Financial Institutions

(100295)
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