The high cost, for the poor, of using a bank
In September, I attended a meeting on how to help low-income people get better access to financial services. I found myself sitting next to an executive from a large financial-services firm, who told me that he had recently pretended to be without a bank account for an entire afternoon. He and several people in his department had been sent to check-cashing stores in places like Harlem to cash checks, send money, and pay bills, to experience what it might be like to live without a bank account. He became animated as he pulled a file from his briefcase and showed me the stack of receipts he had accumulated in his afternoon of living on the edge. He was outraged by how much it cost to send money from Manhattan to Brooklyn, and that he had been forced to spend an extra $1.50 to pay a bill. He had ended his day puzzled about why anyone would use check-cashing services instead of banks.
As I peered at his receipts, I immediately recognized one of them. It came from RiteCheck, a check casher in Harlem and the South Bronx where I recently worked for four months. To try to get my own perspective on the financial lives of the urban poor, I spent eight hours a week working as a teller at RiteCheck. As part of my research, I also interviewed fifty RiteCheck customers and spent a month staffing a hotline run by the Virginia Poverty Law Center for people experiencing difficulties with payday loans—small, short-term, unsecured loans that are typically advances on the borrower’s paycheck. I came away from my experiences with a very different take on the problem of access to financial services than my new friend.
There have been a lot of reports lately on the growing numbers of people without bank accounts, and on those who have accounts but continue to use alternative financial services such as payday loans. All this has convinced policy makers and many consumer advocates that low- and moderate-income people are victims of “financial exclusion.” They have therefore concentrated on moving these people to banks.
The numbers of “unbanked” and “underbanked” people are indeed growing. Seventeen million people nationwide are unbanked, up from ten million in 2002; forty-three million are underbanked. In very low-income areas like the South Bronx, where I worked, more than half of the residents have no bank account.