Options for the Unbanked

Several media sources report that 1 in 12 households or 10% of Americans today do not use bank checking accounts, but use cash for everything. Most people have had checking accounts at some point.  Some have had to close them because they never learned to manage them well. Others closed accounts after life’s circumstances put them in a bind, resulting in bounced checks and accumulated fees and making it too difficult for them to try opening another account. Many banks don’t want to deal with people who have had bad checking account and credit history.

Not having a checking or other bank account makes it difficult for people to establish credit, which is often a barrier to home ownership or buying a car to get to work. Thus people remain economically depressed because of their failure or refusal to deal with banks. Many people with modest incomes, or those who have gone through terrible financial circumstances, as well as those in poverty, don’t have traditional bank accounts these days.  Bankless or under-banked people can wall themselves off to financial advancement by not learning good financial management and the knowledge required to manage bank accounts. This seems to be another consequence of our bad economy. The best thing these folks can do is to take a financial class, often held by non-profits in their community, or at a Dave Ramsey Financial Peace University course.

For those that continue to go the non-bank route, they might be victims to high charges for the only options that are available to them:

  1. Check-cashing stores are the first option many choose when they have problems with bouncing checks. These unscrupulous enterprises provide a payday advance {loan} until the paycheck arrives, charging high fees and interest, sometimes several hundred percent. They provide a handy service to the person who gets stuck and needs quick cash, yet they charge exorbitant amounts of interest. Many people get stuck, unable to catch up, and have a hard time breaking the pay-day loan, cash advance, check-cashing store cycle. I recommend that people avoid all these if at all possible.
  2. Some people cash their paychecks and then buy everything with cash. If they need to send a bill, they pay for utilities at a local bill-paying place such as some grocery stores offer, or they buy money-orders. Money orders aren’t cheap if you calculate the cost throughout the year, and having cash can make security an issue and budgeting a challenge. I recommend that people who do this use the envelope system until they can get re-established with a bank checking account.
  3. Pre-paid credit cards are another option that people may use. Companies like RushCard provide a nice way for people to pay bills easily, as their paychecks are automtically deposited and they can use these debit-like cards to pay bills. Some of these services have high fees that really add up. Some of them have an annual fee, monthly fees, and per-transaction (bill paying and ATM) fees. Searching these companies on Google, I found numerous complaints, often concerning the quality of service, money not being deposited on time, and mis-used account numbers (theft of account numbers). Some users of pre-paid cards hope to establish good credit by using them, but I am not sure they accomplish that. What I do like about the RushCard is the budgeting tools and bill managing capability. This feature might teach some to get back on their feet and to practice and learn good personal finances, thereby helping them build a bridge back to financial health.

Those with modest incomes and those who are in or near poverty are a vast population under-served by most mainline large financial institutions. It would be welcome news if just one of these institutions made it corporate policy to design a plan to serve this population. They could start by offering new creative services and education and customer support especially designed for the under-served population, all with an affordable cost structure.

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