Recent research by CUNA in collaboration with the University of Wisconsin’s Applied Population Lab examines geographic access to financial institutions for low-income, modest-means, and high-income groups in both rural and urban areas by considering the location of community-chartered credit union branches and bank branches.
Our research reveals that community-chartered credit unions locate a higher percentage of branches in moderate- and middle-income (71% vs. 66%) and low-income (6% vs. 5%) census tracts compared with banks.
By contrast, banks place a higher percentage of branches in upper-income areas compared with credit unions (29% vs. 23%). These results hold across all credit unions, even those with restricted fields of membership.
These findings generally hold for both rural and urban areas. As we know, commercial banks are owned by shareholders and are structured to maximize profits and shareholder value.
This can lead to banks closing “unprofitable” branches in low-income, rural, and diverse areas—even if that means that local residents are worse off.
On the other hand, nonprofit, cooperative credit unions are structured to serve their members first. Therefore, we would expect them to locate more branches in areas that may not be as profitable but provide important access to their members.
This is exactly what we see in the data. Banks locate a significantly smaller percentage of branches in low-income rural areas (5%) compared with credit unions (8%).
Compared with banks, credit unions place a higher percentage of their urban branches in low-income areas (6% vs. 5%) and modest-means areas (69% vs. 63%).
In contrast, in both rural and urban areas, banks locate a higher percentage of their branches in upper-income areas. Nearly one-third of bank branches in urban areas are in upper-income census tracts (32%), compared with just one-quarter of credit union branches (25%).
In rural areas, banks locate 4% of their branches in upper-income areas compared with 2% of credit union branches.
Branch location clearly matters when it comes to financial inclusion. Research shows credit unions are doing their part to reduce obstacles to financial inclusion, especially for those of modest means.
In fact, credit unions are doing a better job than banks at using their limited resources to facilitate access for low- and moderate-income members even when they have restricted fields of membership.
SAMIRA SALEM, Ph.D., is a senior policy analyst for Credit Union National Association.