New Report: Rural Communities Face Daunting Challenges Accessing Basic Financial Services
TUCSON, AZ--When it comes to basic financial services, such as banking, rural communities are greatly underserved according to a new report released by the Center for Economic Integrity. While low-income people everywhere are confronted with issues related to the current economic crisis, rural communities are faced with unique challenges. Sparse populations distributed over a large area make it difficult to create the “economies of scale” necessary for traditional financial institutions to be viable. Challenges include:
· Weak technology infrastructure—such as the lack of broadband-- make it extremely frustrating and difficult to participate in online banking services.
· Unstable employment--seasonal agriculture and boom-or-bust industries such as mining --make it difficult for rural residents to access financial products and services, such as credit, that require steady incomes.
· High concentrations of non-bank alternative financial service providers --many of whom could be deemed predatory such as auto title loan, income tax refund anticipation loan and payday lenders-- fill in the market gap.
· Hispanic and Native American consumers rely heavily on non-bank financial service providers in Southwestern Rural Communities
In addition to challenges related to geography and local economies, people living in rural communities who were interviewed for the report expressed deep mistrust of traditional banking institutions. “One of the main barriers we found is that many rural residents simply do not trust banks,” said Kelly Griffith, Co-Executive Director for the Center for Economic Integrity and report co-author. “They are sick and tired of being charged too many unexpected fees. People feel they are caught in a ’gotcha again’ game with the bank and they simply cannot afford it,” she added.
The communities studied for the report, “Building Financial Strength in Rural Communities,” provide an interesting perspective on how the financial industry is evolving. What has been generally described as a two-tiered system--those who have banking accounts and those who do not have banking accounts-- is shifting. The combination of changes in the banking business model, the financial strain many families are experiencing, and technological innovation is giving rise to an emerging third-tier financial services segment that is fulfilling low-income rural customers’ needs. Retailers as large as WalMart and as small as the local gas station are now offering financial services and products. As this segment develops it will be critical for regulators and consumer protection advocates to monitor the direction of its growth and to encourage transparent, fair pricing and practices to meet the needs of low-income rural customers. “Rural consumers in the Southwest need a strong Consumer Financial Protection Bureau in Washington and active state regulators at home to make sure that they get first-class consumer protections and fair terms when using financial services at local retail outlets,” stated Jean Ann Fox, Director of Financial Services, Consumer Federation of America.