WASHINGTON — 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 “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. An additional 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 more than one in four households, or 28.3 percent, either had one or no bank account. A third of those 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.
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.
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.
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. And 6.6 percent said they could not open accounts because they lacked required identification or suffered from poor credit.
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.
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.
Nessa Feddis, vice president and general counsel at the American Bankers 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.
