Fair Lending in America’s Rural Communities
On March 10, 2022, the Consumer Financial Protection Bureau (CFPB) released a blog post regarding an initiative to focus on concerns surrounding banking access and practices in rural communities. Regulators are concerned about rural household financial resiliency and how financial institutions provide solutions to the issues restraining these households financially. Specifically, the publication addresses concerns regarding three issues.
The first issue is what are described as “rural deserts,” which are communities where the number of banks or bank branches has declined drastically from bank consolidation trends. This trend has negatively impacted access to credit, either through the decline of bank officers with operational knowledge in these markets or by causing these communities to turn to nonbank alternatives and products with higher fees and interest rates such as credit cards.
The next issue concerns the potential of discriminatory and predatory practices in agricultural lending, particularly to Black farmers. According to the CFPB and its linked sources, credit providers have historically discriminated against Black farmers, which has contributed to the decline in the number of Black farmers in the United States.
The last concern regards manufactured housing lending practices. The access to credit for this type of home is limited, and according to the CFPB, more than half of these types of homes are in rural communities. As these homes are financed without land, in many circumstances the land on which the home is situated is rented. When the home parks are bought and sold, rents typically increase. As it is costly to move a manufactured home, many of these borrowers cannot afford the increase in lot rents (particularly older borrowers on fixed incomes), which can lead to eviction and an abandoned home.
In May 2021, the CFPB published a data point article regarding the differences between mortgage loans for site-built homes, manufactured homes, and chattel loans (when the home is titled as personal property to be situated on land not owned by the borrower) using Home Mortgage Disclosure Act data. The agency found that borrowers with chattel loans face higher denial rates, higher interest rates, and less likelihood of refinance. It also found that minority borrowers are more likely to receive chattel loans than their non-Hispanic white counterparts.
What this means for your institution is two things. First, consider whether your institution’s current or adjacent market area includes these types of communities that would benefit from access to credit your institution could provide but currently is not. Second, if your institution currently operates in rural areas and provides agriculture and/or manufactured housing credit, include these products in the analysis of your fair lending program. As this will increasingly become part of the focus for consumer protection and access to credit efforts, regulators will want to see either of these scenarios addressed in a fair lending risk assessment if they apply to your institution.
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