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It is no secret the last two-plus years have taken a toll on pretty much all of us in one way or another – our safety, our mental health – while bringing economies around the world to their knees. 

In a moment of crisis when consumers required financial guidance, leadership, and mentors from their local financial institutions, a lot of banks turned on heel, shuttering their branches in those communities already dealing with financial instability and various economic inequalities. 

Set up for financial inclusion failure

In economic crises like that, the underserved pay the highest price. According to a February 2022 report from the National Community Reinvestment Coalition (NCRC) and reported by American Banker, while families were frantically searching for financial support and mentorship in March 2020, many of the nation’s banks took advantage of the COVID crisis by accelerating their already-planned exodus from underserved areas, thereby exacerbating the already growing number of banking deserts across the country.

The numbers aren’t friendly; Since that ominous month of March 2020, banks have closed more than 4,000 branches across the country. Clocking in at 201 closures per month, they doubled their closure rate which – for the previous 10 years – averaged around 99 per month. The NCRC’s report found that over the previous five years, one-third of those closures were concentrated in low- to middle-income and minority neighborhoods.

Overall, such exits by megabanks aren’t new: From 2012 through 2021, megabanks’ presence in rural and underserved areas of the U.S. decreased 10.8 percent, where branch availability is imperative to ending inequalities in access to financial products and services.

Amidst the darkness of uncertain times, however, credit unions increased their presence in those communities by 2.4 percent during the same time period. In fact, National Credit Union Administration (NCUA) data reveals that credit union locations actually remained at the same levels the first year of the COVID-19 pandemic, and more than 730 organizations persisted in their efforts to add branch locations to their networks. 

It was a “cooperative” effort

On Wednesday, June 15, the House of Representatives passed the CUNA-led Expanding Financial Access for Underserved Communities Act, a move that enables federal credit unions to add underserved areas to their fields of membership. It is a welcome advancement for all, as CUNA, Leagues, credit unions, and system advocacy partners strongly support the bill and worked with House members throughout the legislative process.

The Expanding Financial Access for Underserved Communities Act represents the most significant update to the Federal Credit Union Act since 1998. The bill would: 

  • Allow all federal credit unions to add underserved areas to their field of membership
  • Expand the definition of an underserved area to include New Markets Tax Credit areas, and add any region that reaches more than 10 miles from the closest financial institution branch location

In a letter CUNA wrote to the Senate Banking, Housing, and Urban Affairs Subcommittee on Financial Institutions and Consumer Protection, they stated that Congress can promote financial inclusion by making sure that federal law allows all federal credit unions to serve underbanked areas. The subcommittee had held a hearing on the role of Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs).

Offering support to the bill, CUNA President and CEO Jim Nussle said, “This bill will let credit unions do more of what they do best: promote financial well-being and advance the communities they serve. Thanks to the members who supported this legislation, and we look forward to continued work to keep this much-needed update to the Federal Credit Union Act moving forward.”

The letter to the subcommittee also highlighted CUNA’s support of the CDFI Fund and its 433 CDFI-certified cooperatives in the U.S that will take a much-heralded role in providing opportunities for financial inclusion in these newly-acquired fields of membership. A CDFI certification can be earned by any credit union that predominantly serves low-income consumers or financially-underserved communities. CDFI grants are intended to increase the ability of credit unions to lend deeper into their neighborhoods and communities, then communicate and thereby expand access to responsible products and services.

“The CDFI Fund uses small amounts of federal dollars to leverage significant amounts of private and non-federal dollars and has added a tremendous boost to the CDFI industry (which relies heavily on private sector funds from corporations, individuals, religious institutions, and private foundations),” the letter read. “Support for these institutions, as well as providing full funding for the CDFI Fund, are good investments by the federal government.”

Photo: Dan Meyers | Unsplash

Who can credit unions help, and how?

Thanks to the aforementioned Expanding Financial Access for Underserved Communities Act, credit unions across America have a big opportunity to reach out and access fields of membership of the more than 2,100 existing and at-risk banking deserts that can be found across the country, according to the Consumer Financial Protection Bureau (CFPB). In fact, more than 1,500 of those banking deserts are located in rural areas. 

So it wasn’t necessarily a surprise when the CFPB highlighted credit unions and community banks’ presence in rural areas after shareholder-focused megabanks skipped town. 

But the battle continues for many existing consumers who remain underbanked or unbanked in both rural and urban America. Based on a recent Federal Reserve report, 13 percent of U.S. adults were underbanked in 2020; that is, individuals who have some kind of bank account but primarily use alternative – however financially unhealthy – services like predatory payday lenders or check-cashing outfits to manage their finances. 

Unbanked adults, in turn, refers to those who do not use (or simply don’t have access to) traditional, stable financial services like credit cards, personal checks, savings accounts, or loans. Rather, they opt to use those financially unhealthy financial services like payday loans, check-cashing services, or even pawn shop loans to meet their financial requirements. 

Based on the Fed report and highlighted by Investopedia, about one-fifth of U.S. adults use those alternative financial services, and a dominant reason is due to the lack of convenient and affordable financial institution branches in nearby areas. These banking deserts are often found in rural areas, where large institutions forecast little potential for profit. 

Another finding from the NCRC report found that banking deserts disproportionately affect racial minority populations; 25 percent of all rural bank closures between 2008 and 2016 occurred in minority-majority census tracts. This finding is particularly troubling because families in these areas “have been shown to have limited mobility and lower rates of computer access”, meaning that mobile and online banking may not be a realistic or regular feature of everyday life for every household.

Those underserved individuals and families in banking deserts deserve local and accessible financial institutions like a credit union, or even better, a CDFI-certified credit union, they can rely on to establish financial stability and rebuild their credit quality. Later on, they can rely on their trusting and loyal relationship with that CDFI to make that next life-affirming investment like a car payment or mortgage. 

But first things first. What products and services can members in these newly-acquired fields of membership consider? 

CDFIs supply the tools enabling economically disadvantaged individuals to become self-sufficient stakeholders in their own futures. These tools include providing financial services, various loans, and investments. They offer training and technical assistance services while offering development efforts that help individuals and their communities wisely and effectively use credit and capital. 

Small dollar lending, however – and in QCash’s case a digital small dollar loan platform – remains a key credit union product asset for those struggling in underserved areas to get back on their feet after, say, a period of financial difficulty. By enabling our SaaS-based application to integrate with your core processor, the whole process is easy for you – taking as little time as six weeks to implement – and completely seamless for your members. In six clicks and 60 seconds, your members can have their application approved and the requested loan deposited in their account. They just tap, review, consent, and go!

Remember, borrowing is the first pillar of the 5 Pillars of Financial Health for a reason. Thoughtful, calculated borrowing can be a key tool for improving your members’ financial health. Small dollar loans, particularly, remain a strong choice for consolidating existing debt or dealing with unexpected emergencies. 

The House of Representatives just gave credit unions across the country a big opportunity to expand the gift of the credit union movement to entire communities of underbanked consumers who haven’t felt a sense of financial stability, support, and health in years – if EVER. Please consider QCash Financial’s small dollar lending platform in this new digital era for your credit union.

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