Mississippi Business Journal
By: Ted Carter
September 23, 2012
Mississippi has retained its distinction as the state with the highest percentage of households without checking accounts or other banking services, a survey released earlier this month by the Federal Deposit Insurance Corp. shows.
The survey conducted in 2011 found that 15.1 percent of Mississippi households are "unbanked." Though the 15.1 percent is higher than all other states, it marks an improvement from Mississippi's previous top ranking of 16.2 percent reported in the 2009 National Survey of Banked and Unbanked Households.
Nationally, 8.2 percent of households are unbanked, according to the 2012 survey for which the FDIC teamed with the Census Bureau to collect responses from nearly 45,000 households across the country. The 8.2 percent is a 0.6 percentage point increase and represents an additional 821,000 households joining the ranks of the unbanked.
The survey also addressed the percentage of "underbanked" households in the nation and in each of the states. Underbanked households hold a bank account, but also rely on alternative financial service providers such as payday lenders, the FDIC says.
Mississippi's percentage of underbanked households is 23.6, a figure close to the national average of 20.1 percent.
At 28.8 percent, neighboring Alabama has the highest number of households that are underbanked, followed by Texas at 27.2 percent.
Noting that public confidence in the banking system derives in part from how effectively banks serve the needs of the nation's diverse population, the FDIC said the survey is aimed at assessing the inclusiveness of the banking system.
Bankers and policy advocates alike say they are frustrated that so many Mississippians remain outside of the banking mainstream.
Social advocates see the high number of unbanked as one reason so many households are failing to accumulate wealth or gain long-term security. Bankers look at the frustratingly high percentage of unbanked as an unfilled potential for new business and a missed opportunity to spur economic growth in communities across the state.
Both have a huge stake in drawing unbanked and underbanked people into the world of financial services, says Kasey Wiedrich, senior program manager for the Corporation for Enterprise Development, or CFED.
"Our mission is centered around expanding economic security."
CFED measures its success, said Wiedrich, by the households it helps to move into the banking system. That single step is the building block toward helping families buy a house, send children to college or start a business, she said.
She said the CFED has worked with groups in Mississippi on expanding financial access and would like to see a chapter of BankOn started in the state. The BankOn organization helps banks design checking accounts for people who are not using banking services. Further, BankOn assists banks in marketing to under-served areas, Wiedrich said.
"It started in San Francisco in 2005 and it's taken off in many other cities. Some states have started their own BankOn programs," Wiedrich said.
Meanwhile, banker Odean Busby says he has strived for years to get the business of the unbanked. But the deposits and lending growth the unbanked could bring his Magee-based bank has been frustratingly out of reach, he said.
"It makes economic sense and socially a lot of sense," said Busby, CEO of PriorityOne Bank, a community bank with $550 million in assets and 11 offices in five counties in South Mississippi.
"Everybody is looking for every customer they can find," added Busby, who also serves as vice chair of the Mississippi Bankers Association.
"Banks that I'm familiar with have tried for years to penetrate and expand our banking relationships with those customers who don't have banking accounts.
"It is a difficult task because that under banked population just tends to want to use other venues for banking services."
What's frustrating from a business standpoint, said Busby, is that many times the unbanked or under banked "choose to use more expensive routes than banking would be."
One option PriorityOne tried with little success was a simple, low-cost checking account that required a very low balance, he said.
Busby said low-dollar loans have also been offered as alternatives to payday lenders who require borrowers to have both jobs and bank accounts. "I think everyone will have or does have loan service available that can be as low as any amount you can pick," he said.
Mississippi Bankers Association chairman Greg Taylor heads up Merchants and Farmers Bank in Holly Springs. His bank serves two counties with high unemployment and many people who tend to use the bank for check cashing but little else. "We are trying o determine if we can come up with products to assist them," Taylor said.
He said he expects the new FDIC survey will generate momentum among Mississippi bankers to recruit more of the unbanked and underbanked.
Who can help?
As head of the non-profit HOPE Enterprise Corporation/HOPE Credit Union, Bill Bynum is equal parts social advocate and financial services executive. Bringing more people into the banking mainstream should be a priority of state government as well as the banking executives and policy advocates, he said.
"We need to really think about how we can tackle this as a state."
State legislators made a crucial mistake nearly two years ago when they renewed a law that allows payday lenders to continue to operate in the state, he said. "We have the highest concentration of payday lenders in the country. I really think that the Legislature and governor should take a close look at the impact that has on the people to save the little bit of money they are able to earn and to build a future," Bynum said.
"You can't accumulate assets when you're paying so much for financial services."
Payday loans are granted for two-week periods. State law forbids rollovers of payday loans, but Bynum insists that has hardly stopped payday lenders from doing the rollovers.
"They roll them over eight or nine times," he said. "You can see rates that go up into the 400 percent range."
Bynum said his awareness of the rollovers comes through financial documents prospective borrowers have brought to HOPE Credit Union. "As we're trying to help them we're seeing where people have got caught up in a cycle of dependency and people have rolled over these things every few weeks."
During debate over renewal of the payday lending law, operators of the payday lending outlets denied s they routinely rolled over the payday loans. The Mississippi Department of Banking and Consumer Finance said at the time its investigations had failed to find instances of rollovers occurring.
On the homeownership front, Bynum said he thinks Mississippi's banks should take on more low-dollar mortgage loans, a practice that is at the center of the HOPE Credit Union's mission. But, first they would have to accept that "they wouldn't earn as much from an $80,000 loan as they would from a $200,000 loan," he said.
"On one hand we've got some really strong banks, but unfortunately banks tend to look at where they can generate the most profits for their shareholders. It's easier to make loans in areas where you find higher income residents. Payday lenders don't go on Highland Colony Parkway," Bynum said of the stretch of highway between Ridgeland and Madison that is high-end retail centers and a dozen or so banks.
A $275-million incentive
HOPE Credit Union was among a dozen or so Mississippi financial institutions that nearly two years ago shared in a $275-million low-cost loan from the Treasury Department's Community Development Capital Initiative. The money is to provide services to under-served populations in the state.
The banks and credit unions can repay the Treasury at 2 percent interest over the next six years, provided they allocate the funds within that time frame. After that, repayment goes up to 9 percent, an arrangement that the Treasury says will give the institutions incentive to spend the money.
HOPE received $4.5 million. The biggest borrower was Brandon's Community Bank, which received $54.6 million.
Bynum and Freddie Bagley, president and CEO of Community Bancshares, Community Bank parent, said at the time their institutions would leverage the money across a number of fronts but business and mortgage lending and banking services expansions would be priorities.
Bynum said he and representatives from the participating banks met with Treasury officials in Jackson recently. "All of the banks are trying to fulfill their obligations to provide services to low-income communities. I think they understand that people need homes, loans for their businesses and access to banking accounts."
If all goes as planned, Bynum said, the $275 million investment from the Treasury Department will generate $4 billion in financial services for Mississippi.