Financial Inclusion of Rural and Urban Households and the Dodd-Frank Act

This paper examines the consequences of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 on financial inclusion in rural areas. The Act imposed changes in the U.S. banking industry that contributed to closures or consolidation of smaller community banks, mostly in the rural areas, that could not sustain the higher regulatory burden. We evaluate whether the Act had differential impacts on the financial inclusion of rural and urban unbanked households. Financial inclusion is measured by the utilization of banking services such as checking or savings account and by relying less on Alternative Financial Services (AFS). We employ the Changes-in-Changes quantile model to establish if rural unbanked households were more affected relative to their urban counterparts and provide robustness checks through ordered and binomial logistic regressions. We analyze both the short- and the long-term impacts of the Act using household-level data from the FDIC National Surveys of Unbanked and Underbanked Households. Results indicate that rural unbanked households on average were more likely to plan to open a bank account shortly after 2010 but the magnitude of the effect decreased in long-term. The rural unbanked households did not use more AFS services for credit and transaction purposes than urban households in the short term. However, in the long term, they increased their use of AFS for credit relative to their urban counterparts, likely because they were less able to obtain credit from banks. The policy implications point at the need to promote technologies that may help close the rural-urban financial inclusion gap and indentify a potential for combination of Fintech and banking services provision.