Unbanked America - East Valley Tribune: Business

Unbanked America

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Posted: Sunday, May 9, 2004 8:14 am | Updated: 4:43 pm, Thu Oct 6, 2011.

They call them the "unbanked."

About 10 percent of U.S. households are not part of the banking system, according to the Federal Deposit Insurance Corp.

They don’t have bank accounts, and therefore cannot go to the bank and cash and deposit their paychecks, or pay their bills using checks.

It’s this unbanked population, in part, that is helping fuel the ever-increasing growth of the check-cashing industry, according to banking experts.

In many cases, these checkcashing outlets are opening next door to regular banks, offering financial services side by side.

"It must be a good business, they must make money," said Tanya Wheeless, president and CEO of the Arizona Bankers Association.

Check-cashing outlets are serving the people the banks don’t want, said Lee Miller, general counsel of the Arizona Community Financial Services Association, the trade association for check cashers and payday lenders in Arizona.

Check-cashing outlets aren’t regulated and don’t have to be licensed if all they do is cash checks.

"The banks don’t want you if all you need is a checking account, and they will get you to pay up," he said. "So if all you need is to pay your bills, you don’t need to pay the fees they charge you to simply pay your bills."

The growth in the checkcashing industry can be attributed to "folks who come down to the store every two weeks with their check in one hand and a stack of bills in the other, and are prepared to pay a very modest fee to cash that check," Miller said.

"And in many instances the check casher will for free provide the customer with money orders made out to the folks they owe money to," he said. "If it’s in an ethnic neighborhood, the people who work for the check casher speak the language, know the customs and are from that area. So there’s that comfort zone that’s created in doing that."

All sectors of the financial services industry are expanding across the Valley as the population grows, and the check-cashing business is growing right along with the banking and payday loan businesses, said Bruce Tunell, deputy superintendent of the State Banking Department.

"I’m sure there’s more banks, there’s more customers opening checking accounts all the time, there’s more customers coming who maybe have some financial problems, so they can’t open an account," he said. "So across the board there’s just an increase in all of this."


Last November, the Federal Deposit Insurance Corp. hosted a conference that focused on the unbanked, who they are and why they aren’t part of the banking system, FDIC spokesman David Barr said.

Though no concrete conclusions were drawn, it was determined that many people have not been shut out of the banking system but have chosen to remain outside the industry, he said.

"Some of it is cultural," he said. "There are a lot of new immigrants to the country, and their banking system where they came from is a lot different than here in the United States. So there seems to be some type of cultural differences."

Certain immigrants are less trusting of the banks in their own country, and they bring that with them when they relocate, Wheeless said.

"If you look at the fees associated with check-cashing, banks are much more competitive, so there has to be something else out there," she said.

Not so, said Hank Shyne, executive director of the Financial Service Centers of America, the national trade group for check cashers.

"In many instances, the bank requires that there be a deposit on the checking account, otherwise you’re going to get hit with monthly service charges," he said. "And if in one instance you bounce a check, typically today it’s anywhere from $25 to $30 for the bounced check fee, and then also the company that you bounce the check with in many instances will charge a fee."

Many people have checking accounts and still use checkcashing centers, Shyne said.

"It’s not uncommon for someone to walk into one of our financial service centers and cash his payroll check, and then walk across the street to his bank branch and deposit that money as cash into his account so that he can have immediate access to it," he said. "So many people today are living paycheck to paycheck that that’s not an unusual circumstance."

Using a check-cashing service gives consumers immediate access to their cash, whereas banks only allow immediate access if the client has direct deposit or has enough money in his or her account to cover the check until it clears, Shyne said.

A lot of people don’t trust the banking system, and believe banks don’t care about them and are only interested in making money off fees, Barr said.

"I think bankers have got to start looking at that to see if there is sort of an image issue with the way banks run and operate," he said.


At least some of the checkcashing industry’s clientele are people who cannot open a bank account because of their banking history, said Tracey Mills of the American Bankers Association.

Many banks rely on information provided by ChexSystems when deciding whether to allow an individual to open an account, she said.

The ChexSystems network is made up of member banks and credit unions that regularly contribute information on mishandled checking and savings accounts. This information is shared among member institutions to help them

assess the risk of opening new accounts.

ChexSystems members report the names of account holders whose accounts have been mishandled. Reasons for reporting are normally a history of account mishandling and/or outstanding debt.

"Any kind of negative banking information will stay on that for up to five years," Mills said. "Most banks look at ChexSystems or some similar type of vendor to see specifically your habits with banking products. Other banks, and it depends on the area, may also look at your credit history."

Because there are no industrywide requirements, one bank may reject you as a customer, while another will accept you, she said.

"Basically if you’re not eligible to open an account at bank A, you may be able to walk down the street to bank B and open an account there," Mills said. "Often times, a community bank may be a little bit easier to open an account, whereas a large bank may have more blanket policies because they’re serving a large area."

It’s unlikely that many people are outside the banking system because of either bad credit or a bad banking history, Barr said.

"If you’re bouncing checks all the time, then yes, that might have some effect on your banking ability, but there should be a bank out there that is willing to take you on, and some banks even offer services that kind of prevent you from bouncing checks," he said. "I’m not aware of people being unbanked because they’re being locked out of the banking system."

The check-cashing industry provides a cheaper alternative for people who live paycheck to paycheck and wouldn’t be earning any interest on their checking account anyway, Miller said.


More banks are starting to develop products geared toward attracting people who are outside the banking system, Mills said.

"Things like stored-value cards and payroll cards, these allow people who don’t qualify for a bank account to be able to access banking services," she said. "This person is able to develop a relationship with a bank and work their way into being eligible for a basic checking account. It’s not a war with the payday lenders and the check cashers. It’s basically an attempt for the banking industry to reach out to an untapped market."

In the past, immigrants who are sending money to relatives outside the country had to go to check-cashing outlets for that transmitting service, Miller said. However, banks have become more competitive in that area, he said.

"Recently banks have figured out exactly how big a business that money transmitting is, sending money south, and now frankly compete very aggressively for that business, and prices have come down," he said.

Wells Fargo, one of the largest banks in Arizona, does not have specific products geared toward reintroducing people into the banking system, but it is willing to work with people to improve their records and banking history so they can open an account, spokeswoman Marjorie Rice said.

"You need to develop a relationship with your financial services provider so that you know who your store manager is, or the personal banker or the teller you go to all of the time," she said. "If you start seeing that there’s going to be problems . . . sometimes they can give you resources that can help you manage some of these problems."

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