Editor’s Note – Is it any surprise that so many
Americans are no longer using banks? With unemployment much higher than
official numbers indicate, and so many people who are no longer even in
the job market, it is no surprise these Americans live in a cash world; a
hand-to-mouth world. Additionally, with the scandals that plague
banking today, the level of trust is a major issue. Predatory practices
chased many away, along with extremely low interest rates on savings,
and all the rules and regulations infringing on our liberties thanks to
the “Patriot Act”.
More Americans opting out of banking system
By Danielle Douglas - Washington Post
In the aftermath of one of the worst recessions in history, more
Americans have limited or no interaction with banks, instead relying on
check cashers and payday lenders to manage their finances, according to a
new federal report.
Not only are these Americans more vulnerable to high fees and interest
rates, but they are also cut off from credit to buy a car or a home or
pay for college, the report from the Federal Deposit Insurance Corp.
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Released Wednesday, the study found that 821,000 households opted out of
the banking system from 2009 to 2011 and that the so-called unbanked
population grew to 8.2 percent of U.S. households.
That means that roughly 17 million adults are without a checking or
savings account. Another 51 million adults have a bank account, but use
pawnshops, payday lenders or rent-to-own services, the FDIC said. This
underbanked population has grown from 18.2 percent to 20.1 percent of
The study also found that one in four households, or 28.3 percent,
either Ihad one or no bank account. A third of these households said
they do not have enough money to open and fund an account. Minorities,
the unemployed, young people and lower-income households are least
likely to have accounts.
Stubbornly high unemployment and underemployment have placed millions of
Americans in precarious financial positions, leaving them unable to
absorb overdraft charges or minimum-balance fees.
In the past year alone, Wells Fargo, Capital One and SunTrust have
alerted customers to pending fee hikes on checking accounts or have
raised overdraft charges. Banks say service charges are needed to offset
the loss of revenue from a cap on debit-card transaction fees imposed
by the government.
“Banks need to have pricing and practices that consumers can trust and
allow them to build wealth and have economic mobility,” said Deborah
Goldstein, chief operating officer at the Center for Responsible
Lending. “If the account fees will leave them worse off, then its going
to be a challenge for people to use banking services.”
Banks say it is difficult to make money serving lower-income communities
because the cost of managing their accounts outweighs the return.
“There has to be a recognition that there are costs to providing
accounts and those costs have to be covered,” said Nessa Feddis, vice
president and general counsel at the American Bankers Association. She
estimated that it costs banks up to $300 a year to maintain a checking
account because of expenses such as processing transactions.
National Community Reinvestment Coalition chief executive John Taylor
argued that banks could make up some of that cost by the sheer volume of
Feddis disagreed. “You can’t take a losing account and make it up in
bulk,” she said. “You’re not going to spend money to lose money.”
Without access to traditional banks, Taylor said, Americans are
susceptible to abusive practices at non-bank institutions and are likely
to remain trapped in a vicious cycle of financial strain.
“A part of changing the condition of unbanked people is keeping them
away from predatory lenders who keep them mired in debt,” he said. “One
of the reasons you had all of these mortgage companies preying on
low-income communities is because there were no options.”
A report from SNL Financial in April showed that banks have closed
dozens of branches in neighborhoods with a median household income of
$25,000 or less since 2007, shifting resources to areas where the median
income is $100,000 or more.
“The [Community Reinvestment Act] has had a significant impact over the
last 30 years, but did not contemplate some of the new abuses that we’re
seeing and the way banking has changed,” Goldstein said. “But we’ve now
seen financial reform that includes additional consumer protection.”
Congress passed the act in 1977 to address the shortage of credit
available to low- and moderate-income neighborhoods. Consumer advocates,
however, say that regulation has fallen short of ensuring that banks
offer reasonably priced services.
The newly minted Consumer Financial Protection Bureau has jurisdiction
over non-bank institutions and plans to weed out predatory practices.
The agency reviews compliance with federal consumer financial laws such
as the Fair Credit Act.
In the past year, a quarter of households have used at least one type of
alternative financial service, such as a tax refund anticipation loan
or money order, the FDIC study found. Some households, 7.5 percent, said
they simply did not trust or feel comfortable dealing with banks.
Another 6.6 percent said they could not open accounts because they
lacked required identification or suffered from poor credit.
A growing number of consumers without bank accounts are turning to
prepaid cards, with nearly 18 percent of households, up from 12 percent
in 2009, reporting the use of such products.
Feddis of the banking association said prepaid cards are an innovative
tool that banks could use to serve lower-income communities without
incurring much cost.
“There are fewer ways to access the account, so there are fewer
opportunities for fraud, which banks pay a lot to protect against,” she
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