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Banking system

Huge numbers of Americans opting out of banking system - and the media says that's bad!

Saturday, September 22, 2012 by: David Gutierrez, staff writer
Tags: banking system, Americans, opting out

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(NaturalNews) Across the United States, more and more people are opting out of the banking system, according to a report from the Federal Deposit Insurance Corp.

According to the report, 821,000 households (approximately 17 million people) were without a single bank account from 2009 to 2011. Those numbers place the "un-banked population" at 8.2 percent of the U.S. population.

An additional 51 million people told researchers that although they have a bank account, they also make use of payday lenders, pawnshops, rent-to-own services, money orders or other such alternative financial services. This population, known as under-banked, has increased to 20.1 percent of U.S. households from the prior figure of 18.2 percent. Overall, a full 28.3 percent of U.S. households have either zero or one bank account for the whole household.

The report also found that a full 25 percent of U.S. households used alternative financial services in the past year. Among these households, 7.5 percent said they chose to do so because of discomfort with or lack of trust in banks.

But while some people may be voluntarily opting out, many others simply cannot afford to have bank accounts or use other conventional financial services. For example, 6.6 percent of households who used alternative financial services said they did so because either poor credit or a lack of identification kept them from opening a bank account. A third of respondents who had one or no bank accounts per household said they didn't have enough money to open or fund any additional accounts.

The unemployed, low-income households, ethnic minorities and young adults are least likely to have bank accounts.

Drowning in fees

It's not just credit or minimum account balances that are keeping people away from banks. In just the last year, three major banks have raised checking account fees or overdraft charges. This is part of a widespread trend among banks seeking to increase their income after the federal government imposed tough new regulations limiting fees on debit cards.

In addition, it may just be harder to find a bank in a low income neighborhood. An April report from SNL Financial found that since 2007, banks have shifted their resources to areas with median incomes above $100,000 per year, closing dozens of branches in neighborhoods with median household incomes below $25,000.

Banks justify these practices by saying that it's hard to make a profit in low-income communities.

"There has to be a recognition that there are costs to providing accounts and those costs have to be covered," said Nessa Feddis of the American Bankers Association.

Feddis suggested that banks could help lower-income individuals by moving into the prepaid debit card market. The use of such cards has increased to almost 18 percent of households, from 12 percent in 2009.

"There are fewer ways to access the account, so there are fewer opportunities for fraud, which banks pay a lot to protect against," Feddis said.

But consumer advocates insist that banks can be doing more.

"Banks need to have pricing and practices that consumers can trust and allow them to build wealth and have economic mobility," said Deborah Goldstein if the Center for Responsible Lending. "If the account fees will leave them worse off, then its going to be a challenge for people to use banking services."

The problem with relying on alternative financial services, consumer advocates say, is that non-bank institutions charge higher interest rates and may trick consumers with deceptive marketing.

"A part of changing the condition of un-banked people is keeping them away from predatory lenders who keep them mired in debt," said John Taylor, of the National Community Reinvestment Coalition.

Sources for this article include:

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