A new Federal Deposit Insurance Corporation (FDIC) report found that 60 million Americans are "unbanked" or "underbanked". Unbanked means you don't have a checking or savings account; 17 million people fall into this category. Underbanked means you have a checking or savings account but you use money orders, check-cashing services, payday loans, rent-to-own agreements, or pawnshops at least once a year; 43 million people fall into this category. The unbanked and underbanked often conduct their financial business outside the banking system, leaving many to be preyed upon by unreasonably priced (dare I say, unscrupulous) financial services from non-bank institutions, like the check-cashing services. These services can be expensive and lead people into a lot of debt.
Lower-income and minority populations are disproportionately represented among the unbanked and underbanked. Households with less than $30,000 account for at least 71% of the unbanked. Furthermore, an estimated 21.7% of black households and 19.3% of Hispanic households are unbanked.
An FDIC survey found that 73% of banks are aware that their market areas included significant unbanked and/or underbanked populations. Though less than 18% of banks said that expanding services to these populations was a priority in their business strategies. "Banks have largely ignored the unbanked and underbanked, arguing that it's difficult to figure out how to make money off them. But the FDIC says it may look at using the Community Reinvestment Act (CRA) -- and the weight that the act carries in bank examinations -- to encourage financial institutions to provide low-cost banking services and products." The CRA was passed in 1977 to address the shortage of credit in low- and moderate-income neighborhoods. However, there was little focus on the need for banks to offer reasonably priced basic financial services, like check cashing, money orders, affordable small loans, and savings accounts. The CRA regulation doesn't give as much weight to affordable banking services as it does loans or investments. The FDIC is exploring a proposal that would give more weight to basic financial services in determining the CRA rating. A senior vice president of regulatory compliance for the American Bankers Association argued if the FDIC were to explicitly state that creating certain products to serve the unbanked and underbanked met the CRA requirement, financial institutions would welcome the inducement.
The author of the article sums it up perfectly: "Whatever incentive is used, the government should take care to ensure that the products are truly helpful and affordable. If the housing crisis has shown us anything, it's that major lending institutions aren't above taking advantage of low-income and credit-challenged people [oh snap!]. The traditional banking system can be as abusive as the non-bank financial institutions when it comes to the underprivileged. We should care, however, that millions of people aren't banking and that the alternatives are expensive and can trap people into years of debt. At least with the banks, we have the federal power to force them to do the right thing. And now is the time to make them serve communities that have been longing for better and more affordable banking services." (Full Story)
The Corruption Perceptions Index measures the perceived levels of corruption in a country. Corruption is defined as "the abuse of entrusted power for private gain." The scores for the index were determined by interviewing experts and business people both inside and outside the country. The scores are 1 to 10, where 10 is the least corrupt.
The top five least corrupt countries are:
1. New Zealand (9.4)
2. Denmark (9.3)
3. Singapore (9.2)
3. Sweden (9.2)
5. Switzerland (9.0)
The top five most corrupt countries are:
1. Somalia (1.1)
2. Afghanistan (1.3)
3. Myanmar (1.4)
4. Sudan (1.5)
5. Iraq (1.5)
The United States is ranked the 19th least corrupt nation (7.5). (Full Story)
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