1. Banking on the Unbanked
The disparities are great between the Caucasian and the African American communities on issues ranging from
education to health to finances. Ten million American households are “unbanked” or “underbanked.” These households
are lower income, disproportionately poor, minority, young and less educated than the general population.
Conventional wisdom has held that many low-income consumers cannot afford a traditional bank account because of
high maintenance fees. When in actuality, the banking products offered by mainstream banks do not fit the spending and
saving needs of low-income consumers, and banks are failing to tailor their products to compete effectively in low-income
markets.
Consumers then turn to Pay Day lenders, Check cashing facilities or even Pawnshops to supply their banking needs.
These types of institutions offer convenience and easy access to cash but they may charge high prices. There is a debate
on whether Pay Day lenders or Check cashing facilities take advantage of minorities. An article in the September issue of
Ebony stated:
While the industry paints a picture of its customers as middle-income families who need short-term solution to a
temporary cash-flow problem, a stroll through Black, working-class neighborhoods reveals a truer reality.
Representative Mary H. Coleman (MS), President of The National Black Caucus of State Legislators (NBCSL),
formed a Task Force earlier this year and commissioned them to provide an independent analysis of “Race Matters: The
Concentration of Pay-Day Lenders in African-American neighborhoods in North Carolina,” which examines the
neighborhood impact of payday lending in North Carolina and states that payday lending storefronts are
disproportionately located in African-American neighborhoods. Therefore, a briefing was held in Orlando, FL in May of
2005 to study the following:
• How low and moderate income Americans are targeted because they have less than perfect credit ratings;
• “Race Matters: The Concentration of Pay-Day Lenders in African-American neighborhoods in North Carolina”;
• Convene a meeting of the taskforce to learn more about payday lending, including an overview; and
• Look to find out if Payday Lending centers operate and service only specific race and socioeconomic
characteristics.
According to the Center for Policy Alternatives, only 34 states have laws or regulations that specifically permit
payday loans. Two states, New Mexico and Wisconsin, have no small loan usury caps that apply to payday loans,
effectively authorizing payday lending practices. Of the states that allow payday lending, only seven have statutes that
prohibit local companies from partnering with out-of-state banks to evade state restrictions on these payday loans.
In 2004, Georgia enacted the strongest payday lending law to date. Georgia’s law caps small loans at 60 percent APR,
prescribes harsh penalties for violators of the state’s lending and consumer protection laws, and explicitly bars non-bank
lenders from partnering with out-of-state institutions in order to avoid the state usury limit.
Besides enacting state laws to cap or prevent payday lending, tapping into the
“Unbanked market” is another solution. In 2003, The FDIC hosted a symposium at the National Press Club “Tapping the
Unbanked Market: Helping People Enter the Financial Mainstream.” The symposium dealt with attracting and retaining
customers from the unbanked populations, and ways to form meaningful partnerships in the community.
As a result of the meeting, the proposed outreach strategy is as follows:
• Participating banks should open specialized bank branches that provide CCO services;
• The outlets should offer “starter” deposit accounts that have low minimum-balance requirements,
cannot be overdrawn, and include access to low-cost money orders for making long-distance
payments;
• The outlets should offer accounts specifically designed to help people build savings;
• The outlets should offer deposit-secured emergency loans to individuals whose credit histories
make them ineligible for traditional mainstream credit; and
• The outlets should seek community-based partners and offer financial literacy programs.