Social Compact advocates for the expansion of traditional financial services in order to appropriately serve the needs of unbanked and underbanked populations in the United States. The high (and in many cases, exorbitant) fees applied to basic financial transactions such as check cashing, money transfers, etc. can often create significant barriers to wealth creation in low- and moderate-income communities.
Here are some startling facts:
• According to the Center for Financial Services Innovation, an estimated 40 million underbanked U.S. households spend at least $13 billion each year on more than 340 million non-bank transactions.
• In an opinion piece in the Wall Street Journal by Bill Clinton and Arnold Schwarzenegger, in a lifetime, the average unbanked worker spends upwards of $40,000 in check cashing fees.
• And, borrowers pay $4.2 billion every year in excessive payday lending fees states a report by the Center for Responsible Lending.
In an effort to reach out to the millions of Americans spending billions of dollars as they operate outside the financial mainstream, many banks have begun offering a range of low-cost services including checking accounts, low-fee check cashing, ATM-check cashing and financial education classes targeted to the individuals and families who have struggled in the past with the traditional banking system, either overwhelmed by complicated banking fee structures, difficulty maintaining minimum balance requirements or an aversion to mainstream banking practices.
For more information on efforts to bank the unbanked and underbanked, check out the following resources:
• No Bank to call Your Own, by Geoff Williams, in an AARP Bulletin Today article published Feb. 11, 2009
• Unbanked News, email newsletter from Charles Klingman’s (Deputy Director, Office of Critical Infrastructure Protection and Compliance Policy, U.S. Department of the Treasury)
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• 410935_AltFinServProviders, by Noah Sawyer and Kenneth Temkin, and prepared in 2004 for The Fannie Mae Foundation by the Urban Institute Metropolitan Housing and Communities Policy Center
• 20041001_banking, a September 2004 research brief by Michael Barr for the Brookings Institution.
• The Pew Charitable Trust’s initiative on Family Financial Security