Why 30 million Americans lack banking services

Piggy BankMore than a million Americans lost access to banks last year, bringing the total up to 30 million people in this country who can't even open a savings account or write a check. The issue of the "unbanked," as they're being called, is a serious one, and the recession is only making the problem worse.

According to the FDIC, which compiled the stats, poor, immigrant and minority members of society are most likely to have trouble finding a bank. In total, a whopping 25.6 percent of all citizens are unbanked or "underbanked," a situation which makes their day-to-day financing more expensive and makes it extremely difficult for them to attain upward mobility.

Much of the problem is geographical. In low-income, often urban neighborhoods, many people rely on public transportation or walking to get around; the five miles' drive to a bank that might be a minor hassle in the suburbs is a deal-breaker for anyone walking or forced to rely on a bus schedule. Why don't banks build more locations in these lower-income neighborhoods? They're full of people, but they're generally not the kind of people the banks want. Jose Garcia, associate director for research and policy at advocacy group Demos, spoke with Walletpop about the bank-industry economics behind this problem and possible solutions.

As Garcia explains, poor people are less likely to have big bank account balances, so the bank can't make much money lending out their money. Even if the bank is one of the ones that charges a monthly fee for account maintenance, that charge might not cover its overhead. These monthly fees -- while an annoyance for all of us -- can be a significant hurdle for low-income Americans. That eight bucks or so the bank wants them to fork over because they don't have thousands or even hundreds of dollars in their account could help put food on the table, a more immediate need. According to the FDIC's survey, nearly one-third of the people that entered the ranks of the unbanked last year did so because charges like overdraft and maintenance fees were too high for them to bear.

In addition, Garcia says, low-income customers are less likely to have a computer and use online banking, which means the bank needs to staff these branches with a greater number of employees, which is another expense for them. In communities with a large percentage of first-generation immigrants, tellers and loan officers might also need to be bilingual in order to serve the local customer base, and some banks might not want to bother seeking out this additional skill.

The alternatives are pricey, which puts an added burden on these often-poor customers. Check-cashing storefronts, payday loans and prepaid cash cards make it possible for this population to access their money, but the cost is a heavy burden for this already disadvantaged population. Garcia says this offers a great window of opportunity for credit unions to set up shop, but the localized nature of most credit unions means that any kind of large-scale movement to help the unbanked get access would have to come about another way. Ultimately, he says, the government might need to explore legislation that would either mandate or create incentives for banking institutions to bring unbanked consumers into the fold.
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