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More and more Americans are living without banks - why?

By Catholic Online (NEWS CONSORTIUM)
September 14th, 2012
Catholic Online (www.catholic.org)

After three years of very rough financial waters, more and more Americans are learning to live without banks. Roughly 17 million Americans today have no saving or checking accounts, and many rely on check cashers and payday lenders to manage their finances. The question remains . why?

LOS ANGELES, CA (Catholic Online) - In a report from the Federal Deposit Insurance Corp., these Americans are far more vulnerable to high fees and interest rates. They also find themselves cut off from credit to buy a car or a home or pay for college.
 
In another sign of an uncertain economy, another 51 million adults, who do have bank accounts, use pawnshops, payday lenders or rent-to-own services.

The study also found that 821,000 households opted out of the banking system from 2009 to 2011 and that the so-called unbanked population grew to a substantial 8.2 percent. This "under-banked" population has grown from 18.2 percent to 20.1 percent of households nationwide.

Of one in four U.S. households, or 28.3 percent, either had one or no bank account. A third of these households said they do not have enough money to open and fund an account. The report also found that minorities, the unemployed, young people and lower-income households are least likely to have accounts.

The jobless rate has placed millions of Americans in precarious financial positions, unable to absorb overdraft charges or minimum-balance fees.

One of the reasons that more Americans have learned to distrust banks are rate hikes and hidden service fees.  In their defense, the banks say service charges are needed to offset the loss of revenue from a cap on debit-card transaction fees imposed by the government.

"Banks need to have pricing and practices that consumers can trust and allow them to build wealth and have economic mobility," Deborah Goldstein, chief operating officer at the Center for Responsible Lending says. "If the account fees will leave them worse off, then it's going to be a challenge for people to use banking services."

The banks also say it's very hard to make money serving lower-income communities because the cost of managing their accounts outweighs the return.

"There has to be a recognition that there are costs to providing accounts and those costs have to be covered," Nessa Feddis, vice president and general counsel at the American Bankers Association says. Feddis estimates that it costs banks up to $300 a year to maintain a checking account due to such expenses such as processing transactions.

National Community Reinvestment Coalition chief executive John Taylor warns that Americans are susceptible to abusive practices at non-bank institutions and are likely to remain trapped in a vicious cycle of financial strain.

Unbanked people need to kept 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."

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