CUs falling short replacing closed bank branches: Fed report

A new report from the Federal Reserve reveals more than half of all counties in the U.S. lost bank branches over a five-year period stretching from 2012 to 2017, with rural counties hurting the most.

The Fed report notes that more than 1,500 bank branches in almost 800 rural communities disappeared during that time span, representing 14% of those counties’ total branches. Urban areas also saw a decline of 9%.

Credit union branching has largely stayed level in recent years, according to data from the National Credit Union Administration, consistently averaging just under 11,000 locations nationwide since the end of 2015.

The Fed noted that rural areas subject to branch closures often had higher poverty rates, lower median incomes and less education overall than other communities.

While credit unions have in some instances moved into communities following a bank branch’s closure, the Fed said some participants in the survey suggested CUs were not meeting their needs as fully as a bank branch.

“Examples raised by participants included a lack of robust small business account and credit products, overly restrictive lending policies, a lack of direct deposit services for employers and low maximum cash withdrawal limits,” the report said. “It was unclear whether these challenges were related to the fact that the institutions cited were credit unions, or just related to the fact that they were smaller financial institutions with a more limited suite of services.”

One survey respondent was quoted as saying, "[We] negotiated to have a nearby credit union but it is not the same. They do not know us and we do not know them. They are not part of our community.”

As reported, some credit unions have moved into rural areas and seen success with strategies specifically targeting those unique markets, and some analysts have suggested that as bank consolidation continues, an expanded presence in rural communities could be a growth opportunity for credit unions.