A hand with manicured fingers passes a credit card to another hand with a watch on its wrist at an underbanked and unbanked location.
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The Cost of Being Unbanked and Underbanked

For communities of color, discriminatory banking practices block entry into the economy by making rudimentary financial services inaccessible. In the U.S., 25% of households live in unbanked and underbanked communities, conditions created and exacerbated when bank locations are sparse and higher fees are charged to open and maintain accounts. This gap directly impacts Black and Hispanic families who are already underserved and overcharged due to the structural inequalities in this country (Washington Post, Federal Deposit Insurance Corporation).

TAKE ACTION

• Use platforms like Mighty Deposits and Blackout Coalition’s database of Black-owned banks and credit unions to find a bank or credit union aligned with your values.

• Support organizations like California Public Banking Alliance and Take on Wall Street working to make banking more accessible to unbanked and underbanked communities.

• Sign this petition to get the Postmaster General to implement postal banking at USPS.

What does it mean to be unbanked and underbanked? 

“Unbanked” households are those who don’t use or have access to a checking or savings account to manage their money. An “underbanked” household has a bank account but still relies on alternative financial services (AFS) outside of the banking system. Common AFS are money orders, check cashing, and foreign remittances (FDIC).

Marginalized people comprise the unbanked and underbanked communities, including low-income, less education, Black and Hispanic households, disabled households, and households with volatile income.

In 2017, 45.8% of Black households and 49.7% of Hispanic households were fully banked, compared to 77.1% of white households. Only 52.2% of working-age disabled people were fully banked. In total, only 9.3% of the fully banked population were Black, while white people represented 75.2% (American Progress).

What are the effects of not having access to financial services?

On a basic level, not having access to a bank account means not paying bills online conveniently and incurring extra wait times to access funds. At the start of the pandemic, millions of unemployed Americans were struggling for weeks before they received their paper stimulus checks (CBS News). 

As a result of being unbanked or underbanked, individuals must rely on alternative services to meet their banking means, making them more susceptible to predatory lenders, exorbitant interest rates, and costly fees. Such expenses are expensive and prevent upward mobility for those living paycheck to paycheck. 

For example, foreign remittances, or money transfers typically made by migrant workers who send a portion of their wages back home, have an average 7% transaction fee. However, they can be as high as 15–20%, depending on the receiving country. And in some incidences, the recipient might have to pay a fee to collect, cutting into the available funds to use for essential living expenses (International Monetary Fund). And those who rely on check-cashing businesses are paying upwards of $180/year in fees to access their money (Nerd Wallet). These 24-hour businesses provide similar financial services as banks for those without a bank account. They are often more locally available. Consumers in financial constraints can access their money immediately by cashing their paychecks and other checks minus a costly fee that takes a percentage out of each check (Forbes).

Nonbank financial institutions cost unbanked or underbanked consumers $173.2B a year in fees and interest and take “twice the money the government spends on the SNAP food stamps program from poor households each year” (Take On Wallstreet). 

Lastly, no access to credit restricts economic mobility and prevents people in unbanked and underbanked communities from getting approved for loans or mortgages, blocking homeownership; “one of the nation’s key wealth-building tools” (Washington Post). 

What are the banking barriers?

While not having a valid ID, social security number, or living too far from a bank can limit financial services, not having enough money to keep in a bank account and a general mistrust in banks are cited as main barriers (FDIC). Both have a pattern of discriminatory banking practices that might explain the banking disparities: banks in Black and Latinx neighborhoods charge more than banks in white ones (Washington Post).

On average, Black people must keep 60% and Latinx people 54% of their earnings in their checking to avoid fees and closure. For whites, that amount is only 28%. And banks in predominantly Black neighborhoods require an average minimum opening deposit of $81, compared with $69 in white neighborhoods.

What is the solution?

Calls to divest from big Wall Street banks and predatory lenders offer fair consumer banking alternatives like more state-owned public banks or a postal banking system (American Progress, Take On Wallstreet). 

For example, expanding the U.S. Postal Service (USPS) to offer banking services would provide an affordable, accessible, and convenient option for those with or without access to traditional banking. They potentially would offer services like check cashing, inexpensive checking accounts, low-fee ATMs, and provide wire transfer and bill payment services (NBC News). USPS is nationally and globally trusted, already provides some financial services, and unlike banks, are available in every state, city, and town (USPS). The U.S. had postal banking before commercial banks phased them out in the late 60s, but renewed interest is growing on both party lines, and a proposed Postal Banking Act was introduced in 2020 (Data For Progress).

A shift from private banking would help fill a gap for marginalized communities who have been priced out of the banking system.

KEY TAKEAWAYS

• Nearly a quarter of U.S. households are underbanked and unbanked. 

• Limited to no banking services leave many vulnerable to predatory financial services with high rates and fees, like payday loans, money transfers, and check cashing services.

• Discriminatory banking practices prevent economic mobility by charging consumers in predominately Black and Latinx neighborhoods higher banking fees and services.

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