Woodstock Institute has long advocated that these type of data be used to strengthen the implementation of the Community Reinvestment Act Service Test, which encourages financial institutions to provide basic banking services to low-wealth communities. Currently, federal banking regulators rely on the number of branches in those communities––a measure widely recognized as inconsistent and unreliable.
In the past, some advocates have claimed that simply because a branch is located in a lower-income community does not automatically mean that the bank is offering retail products appropriate for low-wealth consumers or effectively reaching those consumers with its existing products. They also claim low-wealth consumers often choose to bank near employment centers, rather near their home. In either case, the physical location of a branch would prove an insufficient measure of how well a bank is serving low-wealth consumers.
“Instead of using branches as a proxy for service delivery, regulators should be looking at the actual provision of services such as checking and savings accounts,” says Geoff Smith, Woodstock Institute vice president and co-author of the report.
The report also shows that if transaction- and account-level data were collected from all financial institutions active in a given market, they could be used to evaluate a bank’s ability to attract and retain customers in low-wealth markets or the percent of customer income generated from bank fees as opposed to interest.
“Disclosing how and where financial services are accessed is an important step towards market transparency,” says Smith. “And when those data are public, it makes it much more difficult to deny access to services on the basis of customer income or geography.”