THE UNBANKING OF AMERICA: How the New Middle Class Survives
by Lisa Servon
Young people use ATMs and online banking.
Banks are catering more to the well off. There’s more fine print. Too many fees.
Banks no longer serve the needs of far too many Americans.
Banks market riskier things.
More Americans are dealing with Chronic Financial Instability. Declining wages, erosion of benefits, increased costs for health care, childcare and education make it harder to make ends meet. Instead of savings Earning money, there are fees for keeping too little money in the bank. If someone bounces a check, they may be charged overdraft INCLUDING for each of the previous 20 payments made on time!
Consumers trust people they know more than they trust the banks.
Banks have closed the accounts of 6% of Americans WITHOUT THEIR CONSENT!
More than one million people with low incomes have been deemed ineligible for bank accounts.
In Hacker’s book THE GREAT RISK SHIFT he says “economic insecurity is widespread. 57% of Americans are struggling financially, 138 million people!
Some pay $2 out of $10 because they don’t have $20. You have to take at least $20 or multiples of $20 out of an ATM. Many people only want $8 or $27.
It takes a couple of days for a check to clear. Many people need the money THEN. They can’t wait 2-3 days for the check to clear (so they pay $ to a check casher rather than going to a bank.)
Banks get 80% of their fees from overdrafts, can be $34 each time!
Americans paid $30 billion in overdraft fees in 2014, mostly to 3 big banks (B/A, Wells Fargo and Chase.) Also, the paperwork is confusing. People don’t understand how debit cards work. Consumer finance is about tricking people not what is best for them.
Big banks know government will bail them out so they continue to engage in risky behavior. There are fewer local banks. Most have $10 billion in assets.
As banks grow bigger, the economy is more dependent on them so banks can demand more from the government.
4 big banks including Citigroup=half of all bank assets. 6000 banks share the rest. They focus more and more on profit rather than customers. Very hard to regulate them.
In the 70s, banks became less accountable, repealing Glass Steagall.
Rising inequality, declining wages, a threadbare social safety net, decreased benefits and increase in cost of living. Nearly half of Americans live paycheck to paycheck. Financial instability is normal. A good education used to ensure upward mobility and economic security, No More. Even those with high incomes, college degrees and owned their own homes may have poor credit scores.
Loss of a job, a medical issue or car problems may cause financial problems.
People used to have health care, unemployment insurance and pensions. Few do now.
More and more economic risk has been offloaded by government and corporations onto the workers and their families. Rising inequality is a contributor. Wages have been declining for 45 years, since 1972!=more inequality. CEO compensation has increased 937% while worker compensation just 10%. Income is less predictable. Rise in part-time work. 20% are working part-time, highest rate since 1983.
Many who WERE working fulltime, now work multiple jobs. Few benefits.
More than HALF of minimum wage workers are women and 28% support children!
Many parents are supporting adult children.
Almost half of all Americans have to struggle to pay off a $400 medical emergency expense.
Housing costs have grown.
50% of renters spend 30% of their income on housing.
Childcare costs have soared. Infant care costs exceed cost of in-state college tuition.
Childcare costs often exceeded rent.
People take on debt because of NEEDS: Food medication, etc.
40% of Americans spend more than their incomes (on basic needs).
They borrow from family, friends, retirement accounts, home equity.
The average household carries $15,000 on credit cards!
Some interest rates are 36-42%/year. (Between 1945-1979 all states capped interest rates for small loans at 36%
Gender, race and social class determine credit. Until Equal Credit Opportunity Act was passed in 1974, women often could not get credit. Even in 2012, women paid more for credit than men! (p. 66)
Blacks and minorities still have more trouble getting credit. More likely to get subprime mortgages.
Credit card late fees went from $16 in 1996 to $39 in 2009.
In Elizabeth Warren’s study of BANKRUPTCY, she expected to find irresponsibility but she found JOB LOSS, a serious MEDICAL problem or divorce caused people to file for bankruptcy.
Credit card companies encouraged young customers, especially first year college students to get them, even offering freebies. In 2005, Visa offered them to 10-14 year olds!
The Credit Card Accountability, Responsibility and Disclosure Act (CARD) of 2009 banned raising interest rates and levying new fees without notifying customers, changing payment dates from month to month, and increasing interest rates Retroactively. They could not offer freebies to those under 21 and they were to determine cardholders ability to pay before issuing credit card (causing $15 billion in penalty fees (costing more than the original loans). Even in 2015, Citibank and others have been fined for illegal and deceptive credit card practices!)
In 2012 40% of Americans used their cards to pay for basic expenses such as food, rent and utilities!
Nearly HALF carried medical debt averaging almost $1700 on their credit cards!
Blacks were hit harder by the financial crisis of 2008, experiencing highest unemployment rates and biggest drops in annual income.
Blacks own just $1 in assets for every $20 owned by whites!
More than half of their wealth was in their homes which lost more value than whites’ homes did when the bubble burst.
More than l/4 of all Americans were paying more than 20% interest on their credit card debt.
Payday loans are illegal in many states but usage has climbed in the past 20 years. A payday loan is usually under $500 and due on the next paycheck date. The fee is usually $15 per $100. Rollovers (to the next date) mean higher fees. Annual Percentage Rates can go up to 300-600%! –often requiring them to repay much more than they borrowed.
There are more payday lending stores than McDonald’s and Starbucks combined! People use payday loans for basic expenses, rent, food, etc.
BANKS: Americans paid $38 billion in overdraft fees in 2011.
Payday loans allowed victims of natural disasters to pay for hotel rooms, dental care, auto repair, etc. and still pay for their utilities. 85% of borrowers don’t have enough money to pay for everyday needs and unexpected costs.
Payday lending stores are often just outside MILITARY bases. Among navy personnel, financial issues are the cause of 80% of security clearance denials!
Consumer Financial Protection Bureau proposed a regulation that would require lenders to determine a borrower’s “ability to pay” before making a loan.
Federal Trade Commission received 88,000 complaints about debt collectors in 2009 but only acted on one!— insufficient employees.
Debts may be sold from one buyer to another over and over with interest added each time.
15% of young adults are not in education employment or training.
The millennial generation, those born in 1980 when Reagan began to strip away the public safety net, totals 83 million, the largest generation ever. Milennials are saving more of what they have.
Americans have $1.2 trillion in student loan debt, more than the amount of auto debt.
But college education does not necessarily lead to a job.
30% get help to cover living expenses. In 2012 1 in 8 milennials “boomeranged” back to their parent’s home during the recession. More than l/3 in their late twenties have “boomeranged.”
Half believe they are worse off than their parents were at the same age. Many do not expect to use banks. Many don’t think banks should charge them when the banks are holding their money. Most have smart phones. They will probably bank with them.
They may rely on Venmo, Peer to Peer(P2P), Lending Club and Prosper and mobile apps. Many banks closing branches.
Some pay a set amount of money like $200/week to someone to save it for them. They can get loans from them too.
Most know banks were responsible for the financial meltdown, subprime crisis, etc.
Fenway Summer hopes to be a credit option for people who now take out payday loans. (FS and Build) to provide credit to subprime consumers without tricking them and make a profit too. Upfront pricing
Keybank has classes on financial education. Mission Asset Funding lending circles.
Anyone who works hard 40 hrs/week should be able to earn enough to support a family.
Everyone should be able to work and have a strong safety net when they can’t.
There should be stable housing and affordable health care.
A federal jobs-creation program, greater subsidies for childcare, housing, education and health care.
Bank profits are more important than the public needs today.
Banks are not held accountable. They need to provide safe, affordable services for all, not just the wealthy.
The biggest banks are the top recipients of government subsidies, grants, loans and tax credits!
Lifeline started under Reagan and provides discounted telephone service to 13 million. The government could subsidize banks to serve unprofitable customers who need it.
Safety, affordability and transparency are important.
Banking could be done thru POSTAL SERVICE as it was until 1967. People could make savings deposits there.
Long, fine print documents are wrong. Simple statements should compare choices.
Someone overdrew her account by $10 and the bank hit her with $300 in charges!