Study: Neighborhoods Targeted by the Community Reinvestment Act Get Lower-Quality Financial Products

Date Published: 
October 26th, 2022

A study published in the Journal of Financial Economics examines the quality of financial services and products offered to neighborhoods targeted by the Community Reinvestment Act (CRA). The study found that while low-to-moderate (LMI) neighborhoods targeted by the CRA receive an increased quantity of lending, these neighborhoods receive a lower quality of financial products and services. The study primarily relies on data from the Consumer Financial Protection Bureau’s Consumer Complaint Database, augmented with Census data and American Community Survey estimates on demographics, income, mortgages, and education.

Key findings include: 

  • Lower incomes and education levels correlate with higher amounts of mortgage-related complaints about the quality of financial services at the zip code level 
  • LMI zip codes targeted by the CRA have about 58% more complaints about mortgage product and/or service quality compared to non-LMI zip codes nationwide, and this effect is notably larger in areas with higher proportions of populations of color. 
  • Areas where over 80% of the population are people of color have nearly twice the number of mortgage-related complaints about the quality of financial services compared with areas where people of color comprise less than 20% of the population.
  • CRA-target areas have about 28 percent more mortgage-related complaints than similar non-CRA-target zip codes within the same Metropolitan Statistical Area.

These findings imply that policymakers must consider the quality of the capital flowing into low-income communities and communities of color.

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