Financial Access and Inequality

Poor access to banks and easy access to payday lenders prevent many communities from achieving financial security

Americans cannot function without access to banking services. However, 1 in 18 US households (7.1 million families) was unbanked in 2020 according to the FDIC. This inequality persists because the country’s 168,450 bank branches are physically inaccessible in hundreds of US counties. Households lacking banking options often turn to alternative financial services, like payday lending. Families then get caught in endless debt traps, which exacerbate income and wealth inequality. This article looks at the regions in the US that have the worst access to banking services, and the corresponding fallout that happens when those regions turn to payday lenders.

Being unbanked can be expensive, as high-fees can accrue quickly for families already living on low incomes. For example, families without a regional bank will often deposit their paychecks directly onto prepaid debit cards. However, this unavoidable decision will cost those families $197 in fees each year. While half of the unbanked population say they intentionally choose to be unbanked, the other half is forced to bear these types of costs and more.  

Source: LA Times

Donaldo Espinoza is one of these unbanked Americans who struggles with financial access. Donaldo has no access to a bank and so he has been literally storing cash under his mattress for years. Donaldo remains unbanked because his bank won’t accept his ID. He is from Honduras, is a 54-year old construction worker living in the Bronx and has been working for months to open a bank account. When he took the long train ride to Lower Manhattan, Donaldo was denied an account because he didn’t have the right form of ID. In the end, Donaldo had to miss a day of work only to spend $70 to renew his Honduran passport, which he used to open an account at the bank.

The states across the South of the United States have the most unbanked people. This is particularly acute in Jackson, Mississippi. 17.1% of the 166,000 residents do not have a bank account, according to the FDIC, which is more than triple the national average. This has increased by 5% over the last 5 years. Median income in Jackson is $37,000 and the county is 82% Black.

Low-income populations have much lower access to banks. According to the Federal Reserve, 1% of those with incomes over $40,000 are unbanked, versus 14% of those with incomes under $40,000.