Rural counties with low-income, less-educated consumers see ‘considerable declines’ in bank branches, report finds

Predominantly rural counties that are less economically advantaged and have residents with lower levels of education experienced “considerable declines” in the number of bank branches closed between 2012 to 2017, according to a report issued Monday by the Federal Reserve.

In its Perspectives from Main Street: Bank Branch Access in Rural Communities, the Fed study looked at the impact of bank closures on rural consumers and small businesses. The Fed said that of the counties studied for the report, more than half lost bank branches during the five-year study period. The deeply affected counties – which the Fed said were less economically well off and whose residents had lower education levels – also had a greater proportion of minority residents relative to other rural counties.

Consumers, small business owners, and local government officials who participated in the Fed’s “listening sessions” in 2018-19 (which served as the forums for gathering the information) said that while they have found local or technological substitutes for many but not all services of the closed branches the alternatives were generally more costly and less convenient.

However, the Fed said that branches continue to be important for certain services, including resolving problems, submitting loan applications, and for deposits and withdrawals, despite the increasing use of digital methods to access financial services. “The data also show that a majority of small businesses prefer to utilize local banks to access financial services, which may give them greater credit availability and more favorable credit terms,” the Fed added. “These businesses expressed concern that loan product costs and terms were not always transparent when accessing credit through online lenders.”

Adoption of digital banking services has been more gradual among consumers who are older, have lower incomes or fewer years of formal education, or who live in rural areas, the Fed said its research found. “This lower adoption rate suggests that bank branch closures may present greater challenges for these individuals,” the Fed said.

Federal Reserve Board publishes report on bank branch access in rural communities