A recent set of reports by the Consumer Financial Protection Bureau (CFPB) has spotlighted the difficulties consumers in Southern states face when accessing credit and other financial products relating to banking. The key findings are not all negative, as the reports also found progressive areas. Here’s what you need to know about the financial gaps Southerners face.
Southern States Face Struggles Accessing Credit
The CFPB recently issued two reports: “Consumer Finances in Rural Areas of the Southern Region” and “Banking and Credit Access in the Southern Region of the U.S.” The first report compares consumer financial experiences and outcomes in Southern state rural communities and other regions. The second report takes a closer look at banking access and credit access – including mortgage lending – in both rural and non-rural areas in the region.
According to the CFPB, the lack of adequate bank or credit union options for local communities in the South explains why many southern regions are considered “banking deserts.” Although The Southern U.S. holds meager banking and consumer finance access, it is a dwelling for diverse populations, including in many rural areas.
The Demographics Behind Southern Banking Access
The reporting expresses that to understand the lack of financial access in these states, there has to be further examination of the region’s distinct demographics. Nearly 48 million people live in the southern states of the U.S., and about 23% live in a rural county, compared to 14% nationwide. These states also include nearly half (48%) of the nation’s persistent poverty counties (PPCs.) Additionally, not less than one-third of residents in the region are people of color, and 70% of the United States rural Black population lives in these states.
When evaluating consumers’ financial experiences in this region, access to banking services is a principal influence to consider. For example, the southern states have 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).
How Do These Statistics Affect People’s Finances?
A lack of local access to banking options affects people’s financial experiences in two ways. First, the absence of local banking access makes it difficult to get competitive interest rates on mortgages, credit cards, or small business loans. Secondly, even when there are banking options in rural areas, the reports find that there may still be limited access to banking services like ATMs and lending.
CFPB Report Key Findings
Southern consumers often have more difficulties accessing credit and face higher interest rates
According to the reports, people that live in the southern states apply for mortgages at the same rate as consumers nationwide, yet they are more likely to get a denied application (27% of mortgage applications are denied in the rural South compared to 11% nationally). Additionally, rural Southerners with credit typically 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
Race and rural residency visibility take part in gaining access to credit in the southern region. Compared to similarly-situated white borrowers, people of color are more likely to be denied credit. Overall, Southerners get denied credit at a higher rate than their non-rural peers. These trends lean 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. As a result, southern consumers may be impacted by difficulty obtaining an auto loan.
Evidence of Progress
- It is evident in the CFPB reporting that rural Southerners face financial difficulties because they likely have lower incomes and higher rates of subprime or deep subprime credit scores compared to other regions in the country. However, the reports also found areas with proof 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 partake in increasing credit access in underserved communities.
- Residents of Southern states have higher rates of medical debt. They are relatively more likely to benefit from the recent changes to how medical debt collections get 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.
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