CFPB Releases Reports on Banking Access and Consumer Finance in Southern States
Reports highlight gaps and identify opportunities to improve financial outcomes for many Southerners
The Consumer Financial Protection Bureau (CFPB) today issued two new reports on the financial opportunities and challenges facing Southern communities. The Southern U.S. is home to diverse populations, including many rural areas. Many areas of the Southern region are considered “banking deserts” because of the absence of sufficient bank or credit union options for local communities. The first report, “Consumer Finances in Rural Areas of the Southern Region,” compares consumer financial experiences and outcomes in rural communities in Southern states with other regions. A second report, “Banking and Credit Access in the Southern Region of the U.S.,” dives deeper into banking access and credit access, particularly mortgage lending, in both rural and non-rural areas in the region.
“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). More than a third of residents in the region are people of color, and 70% of the United States’ rural Black population resides in these states.
The level of access to banking services is one important factor to consider in evaluating the financial experiences of consumers in this region. The Southern region has fewer bank branches per person than other areas of the country (3.6 branches per 10,000 people, compared to 5 branches per 10,000 people nationally). A lack of local access to banking options can make it harder to get 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.
Key findings in today’s reports include:
Southern consumers often have more difficulties accessing credit and face higher interest rates. 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.
Initial analyses show credit scores alone do not explain these lower levels of lending. Both race and rural residency appear to play a role in access to credit. People of color are more likely to be denied credit, compared to similarly-situated white borrowers, and rural Southerners are denied at higher rates than their non-rural counterparts. These trends hold true among applicants with both low and high credit scores.
Unbanked rates in the region remain high despite gains. Two states in the region, Mississippi and Louisiana, have the highest unbanked rates in the country, at 11.1% and 8.1% respectively. The highest unbanked rates in the region are in rural communities and communities of color; for example, in Mississippi and Georgia, the rural unbanked rate is almost double the unbanked rate in metro areas.
Consumers face challenges in auto lending. 16% of rural Southerners have an auto loan delinquency, compared to 10% in other rural areas. In rural Southern PPCs, 20% of consumers are delinquent on an auto loan. Rural Southerners remain highly dependent on personal vehicles for transportation due to longer commutes and a lack of alternative transit infrastructure and may therefore be particularly impacted by difficulty obtaining an auto loan.
Rural Southerners continue to face significant financial challenges, as they are more likely to have lower incomes and higher rates of subprime or deep subprime credit scores than other regions in the country. However, the CFPB also found areas where there is evidence of progress:
There are modest improvements in the percentage of people with bank accounts, both overall and among specific communities. This shows that high unbanked rates do not have to be a permanent feature of the region’s financial landscape.
Some mortgage lenders have strong records of reaching historically underserved markets within the region, such as rural communities, low-income borrowers and borrowers of color. Government lending programs and lenders’ access to the secondary market may also play an important role in increasing credit access in underserved communities.
Residents of Southern states have higher rates of medical debt, and are relatively more likely to benefit from the recent changes to how medical debt collections will be reported on consumers’ credit reports. This change in reporting may help narrow the gap in the accessibility and affordability of credit between the rural Southern region and the rest of the nation.