“Many Minorities Shun Banks”


Article 3: “Many Minorities Shun Banks”


This article indicates that more than one (1) in four (4) American households, including more than half of black households, use check cashers, payday lenders or pawnbrokers rather than a bank. This information is set forth in a report issued by the Federal Deposit Insurance Corporation (FDIC) on December 2, 2009, based on an in-depth study conducted by the FDIC.

Nearly 30 million households have no bank account or have one but also use alternate financial services at least occasionally, according to the FDIC report. The problem is most pronounced among minorities. 53% of African-American households and 43% of Hispanic households use check cashers or similar services instead of or in addition to banks.

The report indicates that buying money orders and cashing checks are the most frequent transactions. Those using check cashers and other services say they are faster, cheaper and more convenient than banks, even though they pay a fee to cash a check they could deposit in a bank account for free.

The FDIC wants banks to “win back” those customers, saying consumers should have the benefit of insured savings and be able to build a credit history. According to Martin Gruenberg, FDIC vice chairman, “There’s a substantial segment of American households whose financial services needs aren’t being adequately met.” He calls the disproportion of minority households in the group “dramatic and troubling.”

According to the report, about nine (9) million households, including twenty percent (20%) of families earning less than $30,000 per year, have no bank account at all. Households that have bank accounts but still use check-cashing services are just as likely to be moderate-income (earning up to $50,000 per year) as low-income.

The FDIC will use this data in an effort to persuade more banks to offer “starter accounts,” low-cost, no-minimum checking accounts without automatic overdraft programs that can result in customers getting hit with fees if they go “in the red.” One option, according to FDIC vice chairman Gruenberg, is to offer incentives to banks through the Community Reinvestment Act, which encourages banks to do business in low- and moderate-income communities.

According to the article, banks are already required to offer low- and no-cost checking, but a 2008 FDIC survey indicated that 77% of large banks use automated overdraft programs.

“It is perfectly possible to use and manage a checking account without ever incurring a dime in fees,” says Carol Kaplan, spokesperson for the American Bankers Association. Yet the study shows that banks “need to become more innovative to create products that serve all types of customers. And we need to find a way to do it and still have it be profitable,” states Kaplan.

According to Valerie Wilson of the National Urban League Policy Institute, which advocates for access to banks in low-income communities, profitability should not be the only criteria for seeking customers. States Wilson, “There has to be a greater responsibility for the community in which banks are located.”


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