Susan Tompor The Detroit News
WWR Article Summary (tl;dr) An FDIC survey revealed that the top reasons for not having a bank account included a lack of trust with banking institutions as well as high/unpredictable bank account fees.
Roughly 8.8% of households in metro Detroit haven't taken what financial experts call the first step toward economic inclusion.
They don't have bank accounts. And it's costing them big money to cash checks and borrow money outside the traditional banking system.
Need to cash your stimulus check?
Call a local party store or check cashing store in metro Detroit and it could cost you around $60 to $100 just to cash a $1,400 stimulus check at some spots.
The bigger the check, the more money you're handing over if the fee is based on a percentage of the check's dollar amount.
Check cashing fees can be 6% or more in some local outlets. A $4,200 stimulus check for a family of three could trigger $252 in fees if the store has a 6% fee.
Michigan does not have a law that limits or puts a cap on how much a business can charge you to cash a check.
Consumers without bank accounts face ongoing costs
The problem doesn't disappear with what could be the final round of stimulus checks.
The $1.9-trillion American Rescue Plan calls for sending the Child Tax Credit to families in periodic installments of $300 or $320 from July to December.
The rest would be claimed as a credit on the 2021 tax return. Low- and middle-income families could receive $3,600 for children 5 and younger and $3,000 for those ages 6 to 17.
The objective is to drastically cut child poverty.
If someone doesn't have a bank account, though, they could be looking at check cashing fees. And paying sizable dollars to cash those checks defeats the purpose of that stimulus money, said David Rothstein, senior principal at the Cities for Empowerment Fund, which leads a Bank On initiative to expand affordable banking access.
"These are public dollars that are supposed to go toward fighting the COVID recession and child poverty," he said.
The percentage of unbanked consumers in the Detroit-Warren-Dearborn region is far higher than the 5.4% of U.S. households and the 5.7% of Michigan households that are classified as unbanked in the latest "How America Banks" 2019 survey by the Federal Deposit Insurance Corp. The next survey will be fielded in June, with a report expected in 2022.
The FDIC survey indicated that 13.8% of Black households were unbanked in 2019. Among Hispanic households, 12.2% were unbanked. That compares with 2.5% of White households.
Why are some avoiding banks? The top reasons given for not having a bank account include not having enough money to meet minimum balance requirements, not trusting banks, bank account fees are too high, and bank account fees are too unpredictable.
The numbers of unbanked are expected to grow following the COVID-19 pandemic, given the rapid increase in the unemployment rate and the lingering loss of 8 million jobs across the country since the pandemic hit the U.S. more than a year ago.
FDIC surveys show that those who are unemployed are four times more likely to fall into the unbanked category. They don't have direct deposit of a regular paycheck to qualify for some banking accounts. They may face financial challenges that trigger a string of unaffordable overdraft fees — and a bank or credit union account could risk being closed.
Millions of consumers — including people of color — aren't able to easily cash a check or visit an ATM because they're not customers of regular banks.
In a positive twist, some options have opened up for those trying to save money when cashing a stimulus check.
Chase Bank, for example, will cash stimulus checks with no fee for non-customers at all Chase branches.
Kroger stores are offering free check cashing for government checks, including stimulus checks.
But even so, not having access to a bank account — where you might be able to pay bills online — when offices or stores are closed hurt consumers during pandemic protocols.
"Both COVID and the recession that immediately followed really did exacerbate the challenges of being unbanked for families," Rothstein said.
"They were literally shut out of the economy and that was almost overnight."
A new campaign to #GetBanked The FDIC has launched a #GetBanked promotion to help 7.1 million U.S. households without a bank account find an affordable option, such as a "checkless checking account" where you can use a debit card instead of writing checks. See www.fdic.gov/getbanked.
One reason to "Get Banked," according to the FDIC: "When your money is direct-deposited into an FDIC-insured bank account, you get access to your money sooner than you would with a paper check. You can also save money by not having to pay check-cashing fees."
In October, the American Bankers Association called on every bank in the country to consider offering "Bank On-certified accounts" to expand access to banking services and reduce the number of unbanked and underbanked Americans. More than 40 banks offer such accounts today. The minimum opening deposit could be $25 or less.
The Bank On accounts charge small fees or no fees, have low monthly maintenance fees and no overdraft fees.
A key feature for many financially challenged consumers is the fact that the Bank On accounts make it structurally impossible for you to overdraft and trigger those costly fees.
Overdraft fees can be $30 or $35 a pop. And if you have four small checks that bounce at once, you could be looking at $140 in fees being triggered from one mishap.
"There are a lot of people paying hundreds of dollars in fees," Rothstein said.
PNC, others offer affordable options In Michigan, 10 financial institutions offer a Bank On account to consumers here, including Bank of America, Troy-based Flagstar Bank, Detroit-based First Independence Bank, PNC, KeyBank, Chase and others.
PNC announced in late March that it now has two certified Bank On products to offer consumers — Foundation Checking and the PNC SmartAccess Prepaid Visa Card.
Cathy Niederberger, PNC’s director of Community Development Banking, told the Free Press that the products can help many people who are looking for what she calls a controlled environment when it comes to possible fees or overdrafts.
The goal is to provide banking options for customers who may not have had access to traditional checking or savings accounts.
Some consumers might not be eligible for a traditional banking account because they bounced too many checks in the past or they have too many unpaid bank fees.
Or some college-age consumers might want a product where they cannot overdraw from their checking accounts, Niederberger said.
In order for Foundation Checking to qualify for its Bank On certification, PNC reduced the monthly fee on that product from $7 to $5 and eliminated the overdraft fee, which was $36.
The $5 monthly service charge associated with Foundation Checking is waived for customers aged 62 or older.
"We call it a second-chance checking account," Niederberger said.
The Foundation Checking account includes a money management course that that is available on mobile devices. The account also offers low-balance alerts.
PNC Bank said it is the first bank to offer two products that meet the Cities for Financial Empowerment Fund’s Bank On national certification.
"Our goal with SmartAccess and Foundation Checking is to help customers enter the banking system and to remain in it," said Bonnie Wikert, head of PNC’s Retail Segments and Deposits, in a statement.