The consolidation of financial institutions in the United States – yes, including credit unions – is hitting rural populations and communities extra hard, leaving residents without the basic financial services they have been used to in order to grow or maintain their economic health or financial inclusion efforts.
A rapid exodus of in-person banking services is in progress, as rural communities are ten times more likely than urban areas to be located in a banking desert, according to research conducted by the Consumer Financial Protection Bureau (CFPB). Stakeholders have detailed how stark declines in the number of financial institutions in rural regions have had a particularly negative effect. Such declines, in turn, led to the arrival of certain non-bank alternatives like predatory payday lending outfits that charge outright abusive high fees and interest rates.
These all-too-familiar banking deserts throughout the U.S. only exacerbate the damage to the financial health and inclusion efforts of those rural communities. These communities require the financial stability a credit union community development financial institution (CDFI) can provide.
Major bank holds out on serving needy Louisiana banking desert
Some banking deserts don’t necessarily form by accident. Often, a financial institution leaves town due to the lack of recent revenue that doesn’t satisfy management. Unfortunately, the circumstances can also be more nefarious and bogged down in unnecessary delays, or delays that could easily be rearranged to serve the financial inclusion needs of the communities they left behind.
In a development featured in an article in The Shreveport Times in 2019, a building that used to house a major U.S. banking institution in Cedar Grove, Louisiana, had been vacant since 2017. Curiously, the site had been restricted from offering any type of financial service institution to replace it. Caddo parish commissioner Steven Jackson explained at the time that by closing the bank had been neglectful by leaving a void of banking services in the Cedar Grove neighborhood.
“That community does not have a bank at all,” Jackson explained. “You can get liquor, you can get a payday loan and you can pawn your families [sic] valuable possessions, but you can’t cash a check.”
A representative for the major banking institution replied that the site in question closed in December 2017 and apparently could not be a site of any type of financial service business. “The site is under contract and is deed-restricted against future owners operating any type of financial service business.”
Such developments center on the fact that with a lack of financial services or mainstream institutions like a community-centric CDFI, the Cedar Grove parish now serves as an ideal target for predatory payday lenders to enter the area and proceed to profit off abusive high-interest rate loans from vulnerable, low-income individuals in stark need of funds. In Cedar Grove, Commissioner Jackson claimed a local credit union-designated CDFI was interested in the property under contract with the major bank, only to be turned away.
When a community’s only financial institution leaves, the dearth of financial services and sources of financial inclusion pose a major setback for local consumers, especially for the low-income and underbanked. Banks contracted 6,764 branches in the U.S., or 7 percent of the total number, from 2012 to 2017, according to a Federal Reserve report in November 2019. Unfortunately, the report found that 39 of those counties were rural.
Photo: Mi Pham | Unsplash
Federal agencies aim to expand fields of membership to underserved areas
In March 2022, credit union trade groups mentioned the CFPB in reestablishing the call for Congress to pass the House Financial Services Committee Chairwoman Maxine Waters’ bill that would allow credit unions to expand their fields of membership to underserved areas of the U.S.
“Credit unions have always played an important role in helping those of modest means and the CFPB’s report reaffirms this mission,” said B. Dan Berger, President and CEO of the National Association of Federally-Insured Credit Unions (NAFCU). “By nature, the credit union industry prioritizes meeting the financial needs of those who are underbanked and left behind by big banks.”
The CFPB adds that, broadly speaking, rural areas have lower incomes, higher rates of poverty and resistance in their efforts to make ends meet. Those traits are what attracts the buzzards in the predatory payday lending industry. The agency stated it intends to research further the financial needs of consumers while sitting down with applicable community stakeholders. One area the agency could begin targeting is CDFIs willing to expand to areas in dire need of financial inclusion and financial stability.
Replacing financial abandonment with the hope of financial inclusion
In some instances, the exiting financial institution could coordinate with another financial institution – optimally a credit union CDFI – to transition a branch location.
Take, for instance, Birmingham, Alabama-based Regions Bank who opted to discontinue several branches in the Mississippi Delta region. They reached out to West Point, Mississippi-based Hope Credit Union to inquire if they would be interested in taking over.
Fitting with their mission “to improve the quality of life for low-income, low-wealth individuals and communities throughout the Deep South”, the credit union took over four branches from Regions in 2015. Regions coordinated with Hope to make sure there was no loss of service for the customers-turned-members during the process, in addition to promote Hope to potential members in the community.
“It was a win for Regions, it was a win for Hope, and it was a win for the community,” said Ed Sivak, Hope Credit Union’s executive vice president and chief communications officer.
Just as important, this transfer effort saved hardworking, everyday Americans the risk of dealing with predatory “financial products” while affording the opportunity to continue their financial health plans in a supportive, member-centric financial institution that they can then build a life of economic comfort for themselves and their loved ones.
