More and more Americans are living without banks - why?

By Catholic Online (NEWS CONSORTIUM)
9/14/2012
Catholic Online (www.catholic.org)

Check cashers, payday lenders finding new popularity with cash-strapped public

After three years of very rough financial waters, more and more Americans are learning to live without banks. Roughly 17 million Americans today have no saving or checking accounts, and many rely on check cashers and payday lenders to manage their finances. The question remains . why?

In another sign of an uncertain economy, another 51 million adults, who do have bank accounts, use pawnshops, payday lenders or rent-to-own services.

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LOS ANGELES, CA (Catholic Online) - In a report from the Federal Deposit Insurance Corp., these Americans are far more vulnerable to high fees and interest rates. They also find themselves cut off from credit to buy a car or a home or pay for college.

In another sign of an uncertain economy, another 51 million adults, who do have bank accounts, use pawnshops, payday lenders or rent-to-own services.

The study also found that 821,000 households opted out of the banking system from 2009 to 2011 and that the so-called unbanked population grew to a substantial 8.2 percent. This "under-banked" population has grown from 18.2 percent to 20.1 percent of households nationwide.

Of one in four U.S. households, or 28.3 percent, either had one or no bank account. A third of these households said they do not have enough money to open and fund an account. The report also found that minorities, the unemployed, young people and lower-income households are least likely to have accounts.

The jobless rate has placed millions of Americans in precarious financial positions, unable to absorb overdraft charges or minimum-balance fees.

One of the reasons that more Americans have learned to distrust banks are rate hikes and hidden service fees. In their defense, the 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," Deborah Goldstein, chief operating officer at the Center for Responsible Lending says. "If the account fees will leave them worse off, then it's going to be a challenge for people to use banking services."

The banks also say it's very hard 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," Nessa Feddis, vice president and general counsel at the American Bankers Association says. Feddis estimates that it costs banks up to $300 a year to maintain a checking account due to such expenses such as processing transactions.

National Community Reinvestment Coalition chief executive John Taylor warns that Americans are susceptible to abusive practices at non-bank institutions and are likely to remain trapped in a vicious cycle of financial strain.

Unbanked people need to kept 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."

� 2012, Catholic Online. Distributed by NEWS CONSORTIUM.

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Keywords: Banks, rent to own, check cashers, lenders, unbanked population

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1 - 7 of 7 Comments

WVS
8 months ago
I left a big bank about a year ago when things at my past bank started getting really bad, and went with a small community bank, intrust rates are over 3 times better, less fees, nicer people, and supportive of the community.
David W. Cooney
8 months ago
Feddis estimates that it costs banks up to $300 a year to maintain a checking account due to such expenses such as processing transactions.

The banks more than make up for this on the profits they earn by loaning out the money from people's accounts. It is true that they may not do this on every account, but on average, they make quite a healthy profit. Since it is OUR money they are using to make that profit, the cost of maintaining the accounts should just be included, and not used as a means of making even more profits at the expense of the very customers who are providing them with the means of making the loan profits in the first place.
vance
8 months ago
Why are more people not using banks? Because Obama sent more people to the poor house where they HAVE NO MONEY to put in the bank.
J. Dickinson
8 months ago
It should be noted that at least one major retailer offers so-called branded or non-bank debit cards that can be loaded with funds either at a retailer location or as automatic deposit. These cards also charge fees unless a minimum amount is loaded onto the card within a specified time frame as well as for a simple balance inquiry. Problems that can arise with these cards are not handled at a retailer location. If problems can be resolved, the proverbial toll-free number is the only way to attempt resolution. These cards are marketed to the the "unbanked" as an alternative to banks. The only sound reason for using one of these cards would be to avoid cashing a paycheck and carrying a large amount of cash.(You still pay a fee to cash a paycheck.) All local credit unions where I live offer fee-free debit cards, free checking with no minimum balance, and automatic deposits. These credit unions are all federally insured. Are the funds deposited on a so-called branded or non-bank debit card safe ? If your funds are erroneously sent or fraudulently removed from cyberspace how can you resolve the problem quickly? I can go online, call toll-free or in my case, visit the physical location of my credit union. And....I haven't paid a fee in 23 years.Of course, you would need the simple skill of being able to do the math to maintain you credit union checking account.......
J. Dickinson
8 months ago
I agree. I gave up on banks many many years ago. I have been a member of one credit union for 23 years and another for 15 years and I have never looked back. The merits of credit union membership seemed to have slipped away from those who would benefit from joining one. Why ? Do our schools, public or private, teach economic literacy ? No one needs an advanced degree to realize the benefits of credit union membership and the only disadvantage I have observed are fewer physical locations, but ATMs and online banking have mitigated this disadvantage. It is depressing to note that information about credit unions is readily available if one will make the effort to use it, and that's the sad part.....the effort. One has to make the effort. When I see co-workers who cannot add up a simple column of figures, use long division, and who require a calculator to perform simple math functions, I see the absence of effort and economic literacy. If you have the choice between a bank and a credit union, why on earth would you pick the bank ? (Be sure the credit union you use is federally insured.)
TK In TX
8 months ago
That's what I was thinking too. We use a credit union for our "banking" as well.
MMW
8 months ago
I wish Credit Unions were mentioned in this article. They are a viable alternate to the regular banks.

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