When I moved to Georgia a few years ago, I went to the town water office to get the water turned on. When I arrived, around lunchtime, there was a long line at the cashier’s window. At first, I waited in the line; then a woman approached me to ask me what I needed—she apparently knew I was at the wrong window. After I told her, she took me to a back office where I set up my water account and initiated auto-payment on my water bill. As I was leaving, I asked her what the long line was for. But given what I do for a living, I should have known. The line was for customers without bank accounts who have to spend their lunch break paying their water bill in cash. And their heat bill, and phone… you get the idea.
Then I heard from a local pastor that many of his parishioners have a cash crunch right before the holidays because their heat bills spike. The church tries to help out, but it can’t help everyone, and the folks it can’t help have to get a payday loan so they can keep the heat on in their homes. Those borrowers likely spend the first several months of the year (usually more) paying down the absurd interest rates on these loans (between 300 percent to 2,000 percent APR). I knew all about the statistics and the scale of the problem, but it’s still hard for me to believe how hard life can be for some people.
According to Federal Reserve statistics, about half of the US population would need to borrow money if they had a shortfall of $400 due to an unexpected expense. And as for basic financial services, over 30 million are either unbanked or under-banked—meaning that they rely on alternative financial services. The unbanked pay a significant portion of their paychecks—around 10 percent—to use and move their money. This is more than the average low-income family spends on food. And this doesn’t take into account the time and stress of having to take time off from work to go to the water office to pay your bill.
How did we get here? There was a transformation of the banking sector between the 1970s and the 1990s that was a result of both market changes and policy decisions, specifically a strong tide of deregulation. This caused a merger wave and a homogenization and conglomeration of banks that squeezed the community banks. During this time, the credit union and the savings and loans and other cooperative, public-serving, and limited-profit financial institutions were forced to merge and abandon their missions in order to find more lucrative markets and survive deregulation. They left low-income neighborhoods en masse and instituted fees on smaller, less profitable accounts. Many low-income Americans lost their bank accounts during this time.
The merger wave and deregulation eventually created a banking industry that is the largest and most powerful it’s ever been—and it is completely uninterested in banking the poor. In fact, these banks have even used their political muscle to fight New York legislatures’ efforts to make it just a little easier for the poor to get bank accounts.