Report Examines Impact of "Banking Deserts" in the South

Consumers in the South pay higher interest rates and face difficulties accessing credit

A new report from the Consumer Financial Protection Bureau (CFPB) makes clear the potentially devastating impact of banking deserts in the American South. The report notes that the South is home a large number of rural areas and many of these areas lack access to a full range of banking services.

“The rural South faces distinct challenges when it comes to fair access to banking,” said CFPB Director Rohit Chopra. “Understanding regional differences across the country will help us determine where financial marketplaces can work better for all.”  

The Southern region has distinct demographic characteristics that are important to understand. Of the nearly 48 million people in the Southern region, about 23% live in a rural county, compared to 14% nationwide. These states include nearly half (48%) of the nation’s persistent poverty counties (PPCs).

The lack of access to banking has real and tangible impacts to residents in the South.

These impacts include difficulty getting competitive interest rates on mortgages, credit cards, or small business loans. Even where there are banking options in rural areas, the report finds there may be limited access to banking services like ATMs and lending services even when branches are present.

An inability to access credit and higher interest rates on loan products are the two most significant harms noted in the report. The report also notes that these harms are not the result of credit scores and indicates that rural residents with high credit scores are denied loans at rates that are higher than those of their non-rural counterparts.

Specific to credit access, the report says:

"While Southern rural consumers apply for mortgages at the same rate as consumers nationwide (19 per 1,000 residents), they are much more likely to have their applications denied (27% of mortgage applications are denied in the rural South compared to 11% nationally). Additionally, rural Southerners who obtain credit tend to pay higher interest rates on average, 3.51% compared to 3.13% nationally."

Photo byWolfgang HasselmannonUnsplash