Life Among the Unbanked

The Federal Deposit Insurance Corporation estimates that 20% of US households do not have a bank account. People making less than $30,000 USD per year account for about 71% of that figure. 20% of households is a not insignificant number; it’s actually a very large number, and given the growing economic disparities in the United States, it seems entirely possible that these numbers are going to be shifting, with more people dropping out of the banking system, and more people making less than ever before. Discussions about ‘the unbanked,’ as they are known, should be an important part of conversations about economic recovery, class, and how to approach impoverished communities.

I opened my first savings account when I was six, and I still have my card from American Savings Bank with my father’s endorsement on it, registering my princely deposit of $11.30. I, like many people, have had bank accounts for much of my life, have been part of the banking system, am familiar with the banking system, and, critically, have a mainstream credit trail, from student loans to credit cards to car rentals. This provides me with access to a tremendous and important tool: Credit. I can borrow money to buy a house or finance a car or start a small business. I can operate in confidence that I have credit available, if I want it; maybe not very much credit, but, still.

When I travel, I don’t have to puzzle over how I am going to book rental cars and hotel rooms, both of which effectively require credit cards unless you are willing to put down a very large cash deposit. When I open new utility accounts, I can be confident that my credit check will come back clean and I won’t have to pay a large deposit. When I rent a new home, my credit report will be detailed, I have a long credit history, and it is very good. This already puts me above 20% of the population, which has access to none of these things.

Being unbanked can create a state of economic instability, because people without bank accounts don’t just lack access to the banking system (or deliberately choose not to engage with it). They are often unfamiliar with economic basics that seem like second nature to some of the middle class. Never having had enough money to put in a bank, many don’t have credit histories; a bank account is often the first thing you need to provide information on to get credit, you have a hard time trying to buy a home or car without going through a bank and banks are reluctant to loan money to people who do not have a banking history.

For better or for worse, this is a country built on credit, and one where access to credit plays a key and critical role. If you do not have access to credit, you are cut off from numerous social opportunities. And financial illiteracy, seen at very high rates among low income people without bank accounts, also translates into lack of understanding about available resources; financial assistance to go to college, for example. There is tight control over available information and when you are in desperation, you turn to alternative financial services.

The world of alternative financial services is murky, complex, and highly exploitative. I’ve discussed topics like payday lending here, but that’s just the tip of the iceberg. People who need money, fast, in an emergency may turn to high interest and potentially dangerous sources of funds to get through a situation. Unsurprisingly, women, disabled people, people of colour, and those living at the intersections of these identities are the most likely to be low income, the most likely to need emergency money, and the least likely to have access to support networks. When everyone you know is poor, who do you go to when you are trying to leave your abusive partner and you need the money for a deposit on a new apartment? You may go to a payday lender, or to an off-book lender, and take your chances. You need money now. You can worry about the rest later.

The Washington Post ran an expose in July on the fourth bureau, a shadowy collection of companies and organisations that collect financial information and primarily work with unbanked people. People who wouldn’t have a credit record without the fourth bureau, which collects data from nontraditional sources. That data is sometimes wrong; names are mixed up, numbers are misstated, account information is incorrect, but that doesn’t matter to the fourth bureau. It, like many alternative financial institutions, is designed to prey on the unbanked segment of the population.

People who review data from the fourth bureau may come away with incorrect information, and there’s little the subjects can do about it. They may get the runaround as they try to wade through the red tape at shady ‘financial services companies’ in an attempt to correct erroneous information. They might not know how to correct it, how to file a claim for assistance from an entity like the attorney general’s office. They might simply not have time to deal with it. And thus, the black mark remains, and cuts off their access to credit even more. Now they can’t even get alternative credit, and are in an even worse position in a financial emergency.

In discussions about economic recovery, inclusion of unbanked people who are in a very vulnerable position needs to be a part of the conversation. Microlending and similar tools could be a valuable tool for economic empowerment by providing the leg up that some people need to succeed, to push through their unbanked status and have access to the credit market, to start building equity and financial stability. Predatory lending techniques were one of the reasons the economy hit ground as hard as it did, and those techniques are already recurring, illustrating that exploitation still pays. Until we find a way both to make exploitation not pay, and to provide an alternative source of financial assistance for people in vulnerable financial situations, we are going to continue experiencing cyclical economic instability. Which, to be honest, is what many of the wealthiest seem to want, because it helps them consolidate and maintain their power.