FDIC: Quarter of U.S. households have limited or no access to banks

By Ylan Q. Mui
Washington Post Staff Writer
Wednesday, December 2, 2009; 3:45 PM

One-quarter of American households -- about 60 million people -- have limited or no access to banks or other traditional financial services, with low-income and black families among the hardest hit, according to a government report released Wednesday.

The Federal Deposit Insurance Corp. survey of so-called unbanked and underbanked consumers marks the government's most comprehensive effort to quantify a population that has existed largely below the radar of federal regulations and financial institutions. The report found that nearly 22 percent of black households and 71 percent of families earning less than $30,000 do not use banks. In addition, 41 percent of unbanked households felt they were unlikely to open an account in the future.

"Our challenge is to make sure that banks have the appropriate range of products and services that meet the needs of all people," FDIC Chairman Sheila Bair said.

The report defined unbanked households as those without checking or savings accounts. Underbanked households might have checking and savings accounts, but they rely on alternative financial services such as check cashers, payday loans and pawn shops. Such families are often vulnerable to theft and can often struggle to establish credit histories and financial security, the report said.

About 6 percent of households surveyed in the Washington region are unbanked, while 15 percent are underbanked, ranking 20th on the FDIC's list of metropolitan areas with high percentages of such consumers. Atlanta came in first with 9 percent unbanked and 19 percent underbanked, and Baltimore was second.

Many unbanked consumers feel they do not have enough money to open an account, the report found. Meanwhile, it showed underbanked consumers hunt out alternative sources for credit, such as payday lenders and pawn shops, because they are more likely to qualify for a loan and the locations are more convenient.

"A lot of this is a product of rational economic decision-making," Bair said.

Consumer advocates have long pushed for greater oversight of the alternative financial services, arguing that they charge exorbitant interest rates and fees. But industry groups say they have increased transparency of the terms of their services and that their fees reflect the risks in their business. The proposed Consumer Financial Protection Agency currently under debate in Congress would have broad authority to set new national standards for the non-bank financial service providers and investigate complaints -- bringing the industry under the eye of a federal agency for the first time. On Wednesday, Sen. Herb Kohl (D-Wis.) proposed legislation aimed at encouraging banks to compete with payday lenders and provide small, short-term loans to unbanked and underbanked consumers. The legislation would establish a federal fund to guarantee up to 60 percent of those loans. In return, banks must cap the loans at $2,500 and the interest rates at 36 percent, among other requirements.

"As we consider changes to our financial system, we should include reforms that will help increase access to many of those who are left out," Kohl said in a statement.

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