It might seem obvious that banks are attracted to wealthy areas, but it turns out, they may also help make communities safer and more prosperous. To learn more about that relationship, a researcher at the University of Virginia has been studying what happens when banks leave poor areas, and why credit unions and banks can pay big neighborhood dividends.
As banks consolidated in the 80's, they started closing branches. At the University of Virginia's Tayloe Murphy Center, director Greg Fairchild has studied those communities.
"The areas outside of Northern Virginia, outside of Richmond, outside of general affluence were where the areas where bank branches were likely to decline," Fairchild says.
And when the banks left, he says, predators stepped in.
"These would be check cashers, payday lenders, automobile loan companies, title loan companies," he says.
They often charged very high rates, up to 300 percent on loans, and predatory lenders were not the only ones who took advantage of bank less consumers.
"The lack of banking services made these individuals targets for violent crime – robbery specifically – after paydays,” he says. “Often times you’d find criminals who would bust into an apartment, find the gentlemen that were there with cash in hand, and take that cash with little worry of the police either patrolling at the moment and/or any of those individuals calling the police afterwards."
But when communities had banks, crime rates dropped, and that helped push property values up. Fairchild also found it was possible for credit unions to prosper in poor neighborhoods without ripping people off.
"These are non-profit entities," he says. "There are not shareholders. They're owned by the community, and so often they’re able to offer a lower cost services, and they’re often able to offer better rates."
And he hopes the Commonwealth will take note.