More Americans opting out of banking system
By Danielle Douglas
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. said.
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 households nationwide.
The study also found that one in four 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. 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 new accounts.
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 said.
I love how the Wells-Fargo part tells of them raising fees because they got laws regulating the double charging of customers to outrageous fees from both the merchant and the financial bank that instituted swipe fees for both credit card and debt cards. Now that they have to hold it to something more reasonable, instead of admitting to gouging, they have moved the fees to other areas that you will still pay for, even if you are not using their cards.
For myself, I've learned not to do business with someone who seems to concentrate on gouging you the customer. They can keep their services and I will make sure I don't use them.
The business of the swipe fees are only one symptom of many that looks to its customers to pay the corporation's overhead and that adds nothing to the customer's benefits. It only adds one after another payment as the cost of doing that business.
Had I not been satisfied with the local small town bank, I would have went to a credit union long ago to do my banking. However the small town bank I deal with readily supplies my needs without charge. Free checking account and free checks when needed. I never have to present ID as they know me. Now a new employee will sometimes be heard to ask a more senior employee if they know the customer. Or I've had a time or two when I had to present ID at another branch that I am not often in the area of. But it is nice to be able to cash a check for living expenses and not be bothered with the tedious process of the ID routine.
Other than those services that have to be paid by check or postal money order, I pay all bills with cash. Don't have to worry about if the check is good or not or if the merchant has a problem with the check. It's simply a non-event when paying cash. No over draft fees, no inspecting your life to see you are who you say you are, no datamining after you leave for all the details that can be gleaned from such a transaction.
Speaking of overdraft fees, that's another major gouge. Many businesses are now turning over to third party the dealings with checks. A prime example of that is Walmart. The third party guarantees the check good, when it passes the electronic inspection. Should it be bad, the third parties' racket is to then electronically send the check to the bank, have it bounce, and as soon as it comes back it is sent again. It is done multiple times as fast as possible, racking up an over draft fee from the third party as well as your bank, until you make it good. The over draft fee is liable to be multiples of hundreds by the time you actually hear from them.
I do as little checking activity as possible which removes the chance to have such a racket pulled on me for what ever reason.