Access to Consumer Credit in the Southeast: Results of the Community Indicators Project

chartWell-functioning credit markets are essential to support healthy growth in an economy. By connecting lenders with borrowers, credit markets allow households to smooth out their consumption and savings and help businesses to fund their investment and operations. In particular, credit helps to smooth temporary disruptions in consumption, savings, and investment during economic downturns when household income is declining. In an ideal world, low-income and moderate-income (LMI) households would have access to safe and sound institutions that could provide reliable and affordable access to credit and opportunities for saving. (Low income is defined as families or households that earn 50 percent or less of the area family or household median income, respectively; the moderate-income group earns more than 50 percent but less than 80 percent.) Unfortunately, as Fed Governor Sarah Bloom Raskin pointed out in a speech in March 2013, "many working Americans have no practical access to reasonably priced financial products with safe features, much less the kind of safe and fair credit that is available to wealthier consumers."

In this round of the Community Indicators Project (CIP), the Atlanta Fed's Community and Economic Development (CED) team focused on learning about the trends and conditions of access to consumer credit in the Southeast, which includes Alabama, Florida, and Georgia, and parts of Louisiana, Mississippi, and Tennessee. The Atlanta Fed conducts the CIP, a project that gathers information on low- and moderate-income households and communities. The CED group conducted a poll and listening sessions with consumer credit counselors, financial planners, debt managers, and other professionals in November 2012. The questions focused on three types of credit: auto loans, credit cards/revolving credit, and small dollar loans (generally defined as loans of $2,500 or less).

The main results of this project indicate that consumers seek credit cards and small dollar loans to manage cash flow for daily expenses, health care expenses, and durable goods as opposed to unforeseen emergencies. Poor credit history/ low credit scores, and low income were cited as the main barriers in obtaining these types of credit. Furthermore, according to our respondents, credit applicants were more likely to be approved for small dollar loans than for auto loans and credit cards.

Read the full report for more details.