Using Credit Reporting Agency Data to Assess the Link between the Community Reinvestment Act and Consumer Credit Outcomes

Federal Reserve Bank of Boston, Community Development Discussion Paper, No. 2013-02, September 2013

47 Pages Posted: 29 Oct 2013

See all articles by Ana Patricia Munoz

Ana Patricia Munoz

Federal Reserve Bank of Boston

Kristin F. Butcher

Wellesley College; NBER

Date Written: September 3, 2013

Abstract

We use a regression discontinuity design to investigate the effect of the Community Reinvestment Act on consumer credit outcomes using data from the Federal Reserve Bank of New York’s Consumer Credit Panel database (Equifax data) for the years 2004 to 2012. A bank’s activities in census tracts with median family incomes less than 80 percent of the metropolitan statistical area (MSA) median family income count toward a lending institution’s compliance with CRA rules. Assuming census tracts with median incomes at 79.9 percent of the MSA median are the same as census tracts at 80 percent — except for CRA eligibility — discontinuous changes in consumer credit outcomes at that threshold are evidence of the CRA’s impact. We find no statistically significant effects of the CRA on mortgages or foreclosures, either before or after the financial crisis. However, we do find evidence that CRA expanded broad measures of credit market activity: at the CRA threshold, there is a 9 percent increase in the total number of loans, an increase in the number of people covered by the Equifax data, and an increase in the fraction of individuals with a valid risk score. Despite expanded credit activity, which may increase consumers’ risk for adverse outcomes, there is no significant increase in delinquencies at the CRA threshold.

Keywords: CRA, Community Reinvestment Act, lending, mortgages, credit outcomes, low and moderate income, risk score

Suggested Citation

Munoz, Ana Patricia and Butcher, Kristin Frances, Using Credit Reporting Agency Data to Assess the Link between the Community Reinvestment Act and Consumer Credit Outcomes (September 3, 2013). Federal Reserve Bank of Boston, Community Development Discussion Paper, No. 2013-02, September 2013, Available at SSRN: https://ssrn.com/abstract=2346308 or http://dx.doi.org/10.2139/ssrn.2346308

Ana Patricia Munoz

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Kristin Frances Butcher (Contact Author)

Wellesley College ( email )

106 Central Street
Wellesley, MA 02181
United States
781-283-2179 (Phone)
781-283-2177 (Fax)

HOME PAGE: http://web.wellesley.edu/web/Acad/Economics

NBER ( email )

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HOME PAGE: http://www.nber.org/people/kristin_butcher

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