More Americans opting out of banking system
 

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.


If you are still doing business with a major bank, know that you are the where the profit line comes from in part and it will cost you to do business with them.

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.

Re: More Americans opting out of banking system
 

1st bad bank story, they dont want to lend you money

I only use a bank to cash my check, i have a checking account but dont keep much in it...i gamble a lot and pay cash for everything...my brother who banks at the same place, he has good credit but according to our bank, Not enough credit...they wouldnt let him co sign a loan for me $2000 when he makes about $60k a year and I make between $25-50k on commission

I have no credit, not good, not bad, just none cuz i pay cash

2nd bad bank story

my brother is buying a newer model F250 truck, guy wants $15k, he can buy it cash out right but wants to put 10K down, finance $5k to build some credit...no brainer for the bank right, told him he doesnt have enough credit...they want you to do secure loan against your own money...why should i have to pay to spend my own money

credit unions

my brothers friend got him on recently with the firemans credit union, he told them exactly what he told the bank...$10K down, fiance $5k, you keep the title till its paid off.

credit union asks a few questions about the truck, next day they said bring the title for the truck...

so, if i stop blowing my money gambling, ill be doing exactly what my brother just done a few days ago and closing that account and moving all his money right on over to the credit union

Re: More Americans opting out of banking system
 

I think more will follow this sensible action. I think its disgraceful that there is still no control over the extra hikes & charges the US Banks give to their clients.

Re: More Americans opting out of banking system
 

The racket the banks set up for debt reads as this. You can't have credit for a loan unless you are already in debt. If you have paid off your debt, then you don't have recent proof of credit in a few short years.

Banks get their money for nearly no cost in interest from the Feds, yet they are charging usury rates since they got the laws changed. You can't use savings accounts for much, the loss due to inflation is greater than the interest you would make off the money setting there.

Banks got bailed out. They were to honor some requirements as a result of that and either those banks pulled out of the TARP agreement, just prior to time to pay the benefits to the CEOs and senior management. Yet the ones left holding the bag are the taxpayer and the ones that got loans. They were supposed to have their loans renegotiated to reflect the underwater part which all have both failed to do and have resisted any attempts to refinance under those conditions. They'll refinance but at higher rates. This is the reason why the economy crashed in the US and part of the reason for the Euro's problems.

Until the government wakes up to reality that it is the Average Joe that powers the economy and he needs the money to spend to make it all better, not much is going to change. The banks and Wall Street make money, not by selling some tangible for a profit but by getting others money by hook or crook.

I don't have much of a high opinion on them.

Re: More Americans opting out of banking system
 

Her is OZ it is the Government that has forced most of it citizens to have a Bank/Credit Union account.
You cannot get a payment from the government paid directly to you via a Cheque.
You cannot get a Bank/Credit Union account unless you have a Tax File Number.
You cannot (new . coming into force) a Medicare Rebate unless you have a Bank/Credit Union account.
There are business that Don't Deal in Cash at all, thus you cannot pay them in Cash.
The Government here are setting up a Citizen Tracking System and this can be proved by the fact
that most Government Departments can "Cross Access" client information.
It is becoming very hard to "fly Under the Radar".

Re: More Americans opting out of banking system
 

So very true Bazza!!!!
We get paid, say from our government where you NEED a bank account, then it costs you money to get it out?????

I Don't want a bank acc, but I have no choice in the matter!!!!!!!!!!!!!!