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September 28, 2012 - Harry Eagar
Congress, in its wisdom, has tasked the Federal Deposit Insurance Corp. to determine which Americans are “unbanked” and “underbanked,” so that banks can better reach out and provide services to them. You would think, since 2008, that it would be more profitable to worry about serving the customers banks already have –just today, Bank of America agreed to pay a penalty of nearly $2,500,000,000 for misbehavior. But the rule was passed in 2005, when banks had not yet had their behavior exposed so much as they have lately.
The bankless are not entirely excluded from financial services (AFS, alternative financial services in wonkspeak). From the FDIC 2011 report:
AFS transaction products (i.e., non-bank money orders, non-bank check cashing, and non-bank remittances) are considerably more widely used than AFS credit products (i.e., payday loans, pawn shops, rent-to-own stores, and refund anticipation loans). In the last year, 23.3 percent of households used transaction AFS and 6.0 percent used AFS credit product.
That’s percentages of all households, not just un- and underbanked.
As the report notes, those numbers understate the number of the bankless, because the survey was by household. If anyone in the household had a bank account, the whole family was considered “banked.” It is easy to see who in multigenerational households, this results in an overcount.
No surprise, the segments of the population with less money, less reliable employment and less assets are less banked: All households 8.2% unbanked, 20.1% underbanked
Blacks 21.4% unbanked, 33.9 % underbanked
Foreign-born non-citizens 22.2% unbanked, 28.9% underbanked
Households experiencing unemployment 22.5% unbanked, 28.0% underbanked
The survey found that nearly 1 American in 4 did not have as much as $100 saved to deal with an emergency.
What the survey does not say, but which bankers know, is that of people who are banked, half account fo 1 50% of profits, and the other half produce losses. You can see why banks will be unenthusiastic about bulking up that second category with the heretofore unbanked.
Pawnshops, on the other hand, thrive on small deals. The National Pawnbrokers Association says that the average pawn loan is about $80.
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