Whether banks are still dealing with the effects of the 2008 financial crisis, merging with other institutions, or taking advantage of increased automation opportunities, brick and mortar bank branches are closing more frequently than new locations are opening. According to the FDIC, 2010 was the first year in fifteen years that the balance tipped in favor of branch closings.
Most of these closings are taking place in poor communities. With new regulations, it’s more difficult for banks to make money on overdraft fees, and it’s possible that banks in poor communities rely on this type of revenue more than others. Banks are being replaced by payday loan storefronts and check cashing businesses, services that cater to the needs of poor communities, but are more predatory, more expensive, and more financially damaging to consumers and the community in the long run.
Banks face a dilemma. How can they cater to low-income communities while remaining profitable? Most likely more relevant than overdraft fees, in tough financial times, banks that lend money for homes in poor communities may be more likely to need to resort to foreclosure, though a foreclosure heat map from May 2010 shows that foreclosures occur more frequently in areas that have seen bubble-like real estate growth, such as California, Nevada, and Florida.
I’m not sure what the solution should be. Poor communities need financial services. Low-income households need choices other than what payday lenders and check cashing establishments provide. While families can be happy regardless of financial condition, banks should be helping to find innovative ways to increase financial security among the poorest communities.
Updated June 18, 2014 and originally published February 24, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.