The unbanked are those without a bank account or an account at another mainstream financial institution. About 17 million US adults fall in this category. They are often low-income and minority populations who lack the minimum balance required to open a checking and savings account, although many are also illegal immigrants who don't have the necessary documents. Another 21 million, who have checking accounts but often turn to payday loans and other high-cost services, are considered "underbanked." Many are simply turned off by service charges, fees, and other expensive practices used by banks. About a quarter of all US households are either unbanked or underbanked.
What's the significance?
This group often relies on high-cost products such as payday lenders, check cashers, and car-title loans that can have interest rates exceeding 300% annually and quickly rack up fees. They don't have credit histories that would allow them to borrow from mainstream institutions, aren't saving for retirement, and are often excluded from less-expensive forms of electronic payment. Banks are also closing up shop more frequently in low-income areas, exposing the population left behind to alternative products, who move in and target minorities. This problem existed before the recession, most obviously in the subprime mortgage-lending industry, but is now exacerbated.
Who's talking about it?
Catherine Rampell profiles those who fall into this category...A report from National People's Action exposes the huge discrepancy in how people of color are preyed upon by payday lenders...Candice Choi gave up her bank accounts to live as an unbanked person for a month and reports on the whopping fees she racked up...Tim Fernholz analyzes the various initiatives to bring financial products to the unbanked...Adam Levitin notes that while pre-paid debit cards have been effective in filling a need for the unbanked, they're also stacked with predatory practices...The Economist looks at other companies looking to tap into this market...Even before the recession, Anita Hamilton noticed companies were profiting from the unbanked.