In an op-ed for The New York Times, Lisa Servon, professor of urban policy and management at the New School, questions whether banks are prohibitively expensive for many Americans, and sheds light on “why so many people are using check cashers and payday lenders, prepaid cards, and lending and savings circles instead of banks.”
The op-ed comes on the heels of a new FDIC report that found that 25 million Americans are unbanked and an additional 68 million â€“ 20 percent of the population â€“ are “underbanked,” meaning they have a bank account but choose to use a mix of non-bank financial services.
Servon notes the divide between how policy makers view the underbanked and how the underbanked view themselves:
But my customers didn‘t see themselves the way policy makers do. They chose to use alternative and informal financial services because they found banks to be more expensive and confusing and less service-oriented. Many of my customers complained about banks‘ rising fees. The average monthly service fee on checking accounts increased 25 percent in one year alone, from 2010 to 2011. Only 39 percent of noninterest-bearing checking accounts were free in 2011, down from 76 percent in 2009. And the average overdraft fee is now $32.74.
These findings largely echo Advance America‘s experience. In contrast with consumers‘ frustration with banks, our customers value the simplicity, reliability and transparency of our products: 96 percent of Advance America customers rate their experience as good or excellent, and a national survey of payday loan borrowers found that 95 percent value having this credit option.
Servon calls on policy makers to rethink how they view the underbanked.
After years of debate about the “unbanked,” it‘s time for policy makers to rethink the issue. The problem is not that people are unbanked, but that banks are becoming too prohibitively expensive for people to use them.
As regulators continue to examine short-term lending, they must avoid taking a narrow view of the marketplace, and instead foster a balanced regulatory environment that considers the fundamental factors leading millions of Americans to prefer non-bank financial services. An equitably regulated financial market that encourages competition among retailers, non-bank lenders, and traditional banks would benefit consumers and may help bolster the overall economy.
Read the full piece online here.