Unbanked

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The unbanked are adults who do not have their own bank accounts. Along with the underbanked, they may rely on alternative financial services for their financial needs, where these are available.

The unbanked in the United States[edit]

The unbanked are described by the Federal Deposit Insurance Corporation (FDIC) as those adults without an account at a bank or other financial institution and are considered to be outside the mainstream for one reason or another. The FDIC estimates there are 10 million unbanked or underbanked American households.[1] The majority of them are American born while a growing number are immigrants where the two groups have low income as a commonality and lack the minimum balance to open checking and savings accounts.[2] According to Congressman Hinojosa, half of the unbanked had a bank account previously but are choosing to not have an account and opting to using the services of check cashers and payday lenders instead. Research has shown that immigrants who have experienced a banking crisis in their countries of origin are significantly less likely to have bank accounts in the U.S.,[3] and researchers also found that lower rates of financial market participation tend to persist even for immigrants who have lived in the U.S. for several years.[4] Attributes that contribute to these decisions, however, vary for each racial/ethnic group.[5]

In 2003, Donald E. Powell, Chairman of the FDIC, mentioned a personal experience that caused him to believe that banks need to make a greater effort to ensure "all are welcome in the lobbies" which includes getting out into the community because trust is important.[6]

Governor Arnold Schwarzenegger started the Bank on California initiative to help the unbanked in 2008. Previously, in 2001, a financial education curriculum called Money Smart was launched by the FDIC to help the financially unsavvy.[7]

Prior to becoming the FDIC chair in 2006, Sheila Bair ran a research project at for the Inter-American Development Bank at the University of Massachusetts Amherst to discover ways to help unbanked Latin American immigrants use the U.S. banking system. She found that the primary reason recent Latino immigrants don't use banks to remit money is because they don't have documents of legal alien status. Around the same time the Treasury Department put in place Section 326 regulations that allow banks and credit unions to accept identification from foreign governments at their own discretion.[8] Banks like Mitchell Bank in Milwaukee have taken up the Treasury Department on their relaxing of identification standards. They have even "offered pamphlets on how to apply for a Wisconsin state ID and driver's license, and invited the Mexican consulate in Chicago to visit with a mobile unit that issues "matricula" cards".[9] In Chicago, the Consul General of Mexico, Carlos Sada, estimated that up to 25% of applicants of the Matricula Consular ID apply in order use it to acquire U.S. bank accounts.[10]

Federal benefits for unbanked[edit]

A U.S. federal law signed in 1996 contained a provision that required the federal government to make electronic payments by 1999. As a part of implementation of the provision, in 2008 the U.S. Treasury Department paired with Comerica Bank to offer the Direct Express Debit MasterCard prepaid debit card. The card is used to make payments to federal benefit recipients who do not have a bank account.[11]

References[edit]

  1. ^ ""Tapping the Unbanked Market" Symposium". Federal Deposit Insurance Corporation (FDIC). Archived from the original on January 2, 2011. 
  2. ^ Hamilton, Anita (August 16, 2007). "Profiting from the Unbanked". TIME Magazine. 
  3. ^ Federal Reserve Bank of Chicago, Bank Crises and Investor Confidence, November 2008
  4. ^ "Immigrant-Native Differences in Financial Market Participation," Federal Reserve Bank of Chicago, December 2006
  5. ^ Federal Reserve Bank of Chicago, The Importance of Check-Cashing Businesses to the Unbanked: Racial/Ethnic Differences, August 2003
  6. ^ "Tapping the Unbanked Market: Helping People Enter the Financial Mainstream". Federal Deposit Insurance Corporation (FDIC). Archived from the original on January 4, 2011. 
  7. ^ "Money Smart - A Financial Education Program". Federal Deposit Insurance Corporation (FDIC). Retrieved 2009-02-21. 
  8. ^ "Hearings before the Subcommittee on Financial Institutions and Consumer Credit "Serving the Underserved: Initiatives to Broaden Access to the Financial Mainstream"". The United States House of Representatives. June 26, 2003. 
  9. ^ Jordan, Miriam (July 11, 2005). "Banks Open Doors To Illegal Immigrants". Wall Street Journal. Archived from the original on February 16, 2008. 
  10. ^ "Statement of Sheila Bair Dean's Professor of Financial Regulatory Policy University of Massachusetts Amherst Before the Congressional Hispanic Caucus Hearings on Matricula Consular". Asociacion de Supervisores Bancarios de las Americas (ASBA). March 26, 2003. Archived from the original on August 12, 2007. 
  11. ^ “Federal government chooses direct deposit and prepaid cards over mailing checks”, BankCreditNews, 15 Apr 2013, Accessed 22 Apr 2013

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