Living in an underbanked (or unbanked) area can have serious negative consequences on a household. Without access to mainstream financial services offered by retail banks such as checking and savings accounts or the ability to take short term loans at a reasonable interest rate, people often turn to other services such as payday lenders, check cashing and money order services, or pawn brokers to make ends meet. These companies charge fees for services that people with access to traditional banking utilize for free. Over time these services can overwhelm consumers and create more financial hardships.
Most unbanked and underbanked people are found in areas of high poverty, such as rural Appalachia. In our region, few national banks are present outside of urban centers, and many people are un/underbanked due to a lack of accessible financial institutions, transportation, or internet access needed to participate in traditional banking. On top of longer travel times to reach a banking institute, many of the low-income households have zero or bad credit which bars them from receiving credit or short term loans at affordable interest rates that would allow them to cover unexpected expenses or make ends meet between checks.
Desperation and circumstance often drive people to utilize predatory payday lenders who have annual interest rates in the range of 300 percent or more. Borrowers can become trapped in a vicious cycle of rollovers and accrue fees that double the original borrowed amount in only a few months’ time. Even check cashing and money order services can take a toll on families with their fees. The average check cashing price is three percent of the amount of the check being cashed. A family making $20,000 a year would lose $600 in fees, which is a significant amount that could be utilized for essentials like food, medicine, and utility bills.
What Can Be Done?
Fahe and our Members work to eliminate persistent poverty in Appalachia. By creating and supporting leadership, housing, education, health and social services, and economic opportunities, we can fashion opportunities for our families to eliminate the need for quick fixes that place people in financial ruin. Over the course of years we have developed several important relationships which have allowed us to establish successful programs that have increased access to banking products in Appalachia:
- A mortgage broker network that works in remote areas of Appalachia to provide affordable homeownership to underserved areas.
- Working with trust partners, including USDA Rural Development, we piloted the USDA 502 Direct Packaging Pilot which became a permanent program.
- We offer loans through our Community Loan Fund (CLF). The CLF has helped to create several community projects across Appalachia including the only community center in Wolfe County, KY which is based inside a historic school house turned affordable housing for seniors.
- We have Members who are exploring ways to offer consumer credit which will provide alternatives to pay day lenders and help families improve their credit so they can access life-changing capital like low-interest mortgage loans.
- Fahe is also working on a multi-faceted approach to improving the stability of families and communities by creating access to investments and capital from outside the region.
Our efforts help to create jobs, build communities and infrastructure, and attract businesses and investors to the area. Fahe plans to help build up Appalachia so that no families have to be unbanked and live without the security and stability offered by access to financing and capital that is more readily available in other parts of the country.