FINANCIAL ACCESS AND PREDATORY LENDING
One of the challenges that those living in poverty face is access to the financial system. Everything from check cashing to loans is impacted either positively or negatively based upon our ability to access and use the financial systems that drive the economy in the United States.
For the poor, the reasons for inaccessibility can vary greatly. Often, prior challenges with bill payments and financial solvency has negatively impacted an individual’s credit score or the scoring system used by banks to allow people to open checking accounts. As a result, people are locked out of many traditional banks and even credit unions. So they are forced to rely on secondary market sources for routine transactions like check cashing, bill payment, money transfer, and loans. These secondary sources usually impose fees, some extremely high, for what you and I might consider normal and expected services. Consider on-line banking. Personally, I can tell you that I can’t remember the last time I wrote a paper check to pay a utility bill, or almost any other routine bill for that matter. Online bill pay is included in my banking services for free. Easy, right?
But what if I didn’t have a checking account? What if I didn’t have any accounts. Here’s how it might play out. I’d get my check from my job. Then I’d have to go to a check cashing service, many of which prey on the poor by charging an outrageous percent of my check amount to cash it. Now, I have to use that cash to pay a bill. So then I can either try and get to a location that accepts my bill payment (to their credit, many of the utility companies provide numerous options for people to pay at retail locations where they may shop), or I can go and get a money order, probably more than one as I probably have more than one bill. And there’s some more fees. So in trying to be responsible and pay my bills I’ve incurred a significant dollar amount in fees. And if I’m living paycheck to paycheck, or on a fixed income, that can hurt.
Another reason the poor have challenges accessing the banking system is that branches are being closed, especially in poor neighborhoods. Again, online banking is becoming more and more the norm. But you need a computer, and internet access, to make that work. SO even if you have an account, you may have trouble accessing it. Many libraries and charities such as St. Vincent de Paul provide computer access for people at no charge, but people still have to get there and get there when the facilities are open; not always easy.
There are a number of research studies being performed about making access to the financial system easier. One promising and interesting idea is to incorporate banking access into the US Postal System branches. This has the potential to not only help those needed to get access to the financial system, but could also help the postal system itself. New and innovative ideas that are what we need to help achieve an assessable and equitable financial system for all.