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Publication Date

June 2002


Kelly Thompson Cochran, Michael A. Stegman, Robert Faris


Ford Foundation

Researchers find the Community Reinvestment Act (CRA) service test provides minimal incentive for banks to serve unbanked and underserved populations and recommends 10 reforms to strengthen CRA as a tool for helping more families enter the financial mainstream.

Financial services policy debates often overlook the service requirements for large banks under the Community Reinvestment Act (CRA), in part because the criteria are broad and difficult to measure.

This article is based on an analysis of approximately 2,000 large bank examinations conducted over the last five years and an in-depth review of a large number of service test evaluations by federal regulators. It concludes that the test provides only minimal incentives for banks to reach out to unbanked and underserved populations in part because of inconsistent application, confusing standards, and perhaps pressure to help institutions earn satisfactory overall CRA ratings.

The article proposes ten (10) reforms that would make the service test more performance based. If regulators adopt these measures in an upcoming review of CRA regulations, the service test has the potential to become a powerful tool in encouraging banks to help more working families connect to the financial mainstream, thus increasing their chances of qualifying for mortgage and other kinds of consumer credit.

Topics(s): Affordable Homeownership, Consumer Protections, Economic Mobility, Financial Inclusion, Financial Services Industry, Housing Policy, Mortgage Finance