The U.S. Government Accountability Office (GAO) made several recommendations on how low- and middle-income communities can be more effectively served by the banking industry.
The Community Reinvestment Act (CRA) is a law designed to encourage banks to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income areas. A 2015 study by the Federal Deposit Insurance Corporation 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.
The GAO study found that low- and moderate-income (LMI) communities have at least as many banks and credit unions nearby as middle-income communities in rural areas and larger metropolitan areas. However, they have fewer than in smaller metropolitan areas.
To find out how those areas could be better served, the GAO reached out to stakeholders for feedback. The stakeholders included consumer advocacy groups, financial industry members, and regulators.
They shared several options that could serve as incentives for financial institutions to provide basic banking services and small-dollar loans in LMI areas. Specifically, those suggestions include revising the lending and service tests, expanding CRA to include all bank affiliates and nonbanks, expanding assessment areas, and issuing additional guidance.
As the U.S. Treasury Department is currently preparing to conduct a review of the CRA framework, the GAO is recommending that the Treasury Secretary direct the Deputy Assistant Secretary for Small Business, Community Development & Housing Policy to consider the stakeholders’ suggestions.