By Sarah O’Connor in Washington and Francesco Guerrera in New York
December 2 2009
Some 60m adult Americans live without a bank account or use pawn shops and other non-bank operations to handle their finances, according to a government report that called for an expansion of basic services to the “underbanked”.
The report, issued on Wednesday by the Federal Deposit Insurance Corporation, a banking regulator, could increase political pressure on banks to do more for their communities after unprecedented government efforts to bail out the sector.
“[There is] an imperative for government and industry to expand financial access to the substantial number of households that have never been banked,” the report concluded. Sheila Bair, FDIC chairman, said financial groups should offer tailored products to the underbanked.
The study, the first of its kind, lifts the lid on the vast banking underclass in the US, a country that prides itself on the sophistication of its banking sector.
The FDIC found that some 17m US adults are in households without any bank accounts. Another 43m had accounts but were “underbanked”, relying on non-bank services such as pay-day lenders and pawn shops.
The number of underbanked Americans dwarfs the estimated 46m citizens who lack health insurance. Barack Obama has staked his presidency on bringing that group into the system.
The regulators’ pressure on banks to expand their services could prove controversial when many financial groups are still reeling from losses in their consumer operations.
A push to extend basic services such as accounts to poorer communities with patchy credit histories would be especially sensitive because of the role of the subprime mortgage crisis in sparking the recent turmoil.
The FDIC survey revealed vast racial disparities in access to financial services.
Almost 22 per cent of black households had no bank account compared with 3.3 per cent of white households.
In some areas, the difference was starker: in St Louis, Missouri, 31 per cent of black households had no bank account compared with 1 per cent of white households.
Matthew Lee of Inner City Press, a watchdog group in New York, said people who used non-bank services could become easy prey for unscrupulous lenders.
He said: “As a society, we should make banks cover these people.”
Mr Lee added that branches in areas such as the South Bronx did not lose money, partly because of pent-up demand for banking services. “These are not money-losers, but they are not as sexy as other business propositions,” he said.
Not having enough money to need an account was the most common reason cited for staying outside the banking system. One third of households that no longer had accounts said they closed them because of the cost of maintaining them, such as minimum balance requirements, service charges and overdrafts.
Geographically, the south had more households with no accounts than the rest of the country, with Mississippi, Georgia and the District of Columbia posting the highest rates.
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