Using Credit Reporting Agency Data To Assess the Link Between the Community Reinvestment Act and Consumer Credit Outcomes

Kristin F. Butcher
Wellesley College and National Bureau of Economic Research

Ana Patricia Muñoz
Grupo FARO

We use a regression discontinuity design to investigate the effect of the Community Reinvestment Act (CRA) on consumer credit outcomes, using data from the Federal Reserve Bank of New York’s Consumer Credit Panel database (hereafter, CCP/Equifax data) for the years 2004 to 2012. A bank’s activities in census tracts with Median Family Incomes (MFIs) that are less than 80 percent of the metropolitan statistical area (MSA) MFI count toward a lending institution’s compliance with CRA rules. Discontinuous changes in consumer credit outcomes at this threshold—assuming census tracts with MFIs at 79.9 percent of the MSA median are the same as census tracts at 80.0 percent, except for CRA eligibility—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. We do, however, find evidence that the CRA expanded broad measures of credit market activity; at the CRA threshold, the total number of loans increased 9 percent, the number of people covered by the CCP/Equifax data increased, and the fraction of individuals with a valid risk score increased. Despite expanded credit activity, which may increase consumers’ risk for adverse outcomes, delinquencies did not significantly increase, nor did credit risk score worsen at the CRA threshold.