Report: Many Minorities Shun Banks

Martha T. Moore, USA Today, December 1, 2009

More than one in four American households, including more than half of black households, use check cashers, payday lenders or pawnbrokers rather than a bank, according to a Federal Deposit Insurance Corporation report to be released today.

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 survey, the FDIC’s first in-depth study of the issue, was conducted by the Census Bureau.

The problem is most acute 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.

Buying money orders and cashing checks are the most frequent transactions, the survey shows. 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.

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Sidestepping banks is more common in the South, among single heads-of-households and among people under age 45.

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The FDIC will use the data in its 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, Gruenberg said, is to offer incentives to banks through the Community Reinvestment Act, which encourages banks to do business in low- and moderate-income communities.

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

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Profitability shouldn’t be the only criteria for seeking the customers, said Valerie Wilson of the National Urban League Policy Institute, which advocates for access to banks in low-income communities. “There has to be a greater responsibility for the community in which banks are located.”

[Editor’s Note: The FDIC’s National Household Survey is available here.]

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