Consumer advocates often lament the number of consumers who are “unbanked.” It’s true that having a bank account is a sign of stability and that having your money attached to a checking account and ATM card can help build credit and promote long term saving. But it appears that banking fees have driven millions of low income customers away; 25 million Americans are unbanked. Another 63 million are under-banked, which means they may have bank accounts but rely on some alternative financial services. These include check cashers, payday lenders, prepaid cards, and lending and saving circles instead of banks.
I happened to see one of my relative’s Bank of America statements; this relative doesn’t earn much of an income. He opened a bank account with a $100 deposit and three months later there was only $25 left. He hadn’t spent any of money; the $75 went toward a $25 monthly fee to maintain the account. Thank god he didn’t bounce any checks; his account would have been wiped out.
Several years ago the New York Times Magazine, in a story about payday lenders, quoted a low-income customer who used Payday lenders because their fees were predictable. He said he couldn’t trust bank fees because he never knew what they would cost. He closed his bank account after bouncing two checks at $39 a pop.
This week’s New York Times featured an op-ed written by Lisa Servon, a profession of urban politics in New York who worked for a short period at Check Center a payday lender in Berkeley, CA. Her customers found that bank fees had increased 25 percent in one year, that only 39 percent of noninterest bearing checking accounts were free, down from 76 percent in 2009, and the average overdraft fee is $32.74, and low income people bounce checks because they have little or no financial cushion. Some of the payday lenders charge less for a money order than the post office. And Servon points out that bank overdraft charges could amount to 5,000 percent if viewed as a seven day loan. Servon concludes that the problem isn’t the unbanked. It’s the banks that have become too expensive.