12 FOCUSREPORT /The Underserved & UnbankedWhile being un- derbanked or unbanked is less of an issue today than it was in previousyears, the United States still hasits fair share of people who fallinto these categories. Accordingto the FDIC, as many as one infour Americans lack sufficient access to services typically offeredby credit unions and retail banks,and 7% of Americans do not evenhave their own bank accounts.
People in these categories mayhave good reasons for bypassing traditional financial services,but doing so is more expensiveover the long-term. Data fromthe Wharton School of Businessshowed that fees from cashingchecks alone cost an averageof $108 per year, or as much as$40,000 over the course of an individual’s life.
Credit unions can lend a help-
ing hand. Their flexibility in serv-
ing lower income members is
critical to engaging people who
would otherwise miss out on
mainstream financial services.
Understanding the Root ofthe Problem
To craft a solution, it’s criticalto understand what causes individuals to avoid traditional financial institutions. Often, theycan’t maintain minimum balances, pay for account charges,or even afford transportation to acredit union or bank branch during business hours. Sometimeslow credit keeps them from opening a checking account in the firstplace.
These roadblocks force themto turn to check-cashing, prepaiddebit cards, payday loans andother unconventional alternatives. Although these productsmight seem pragmatic on thesurface, they put consumers ata serious disadvantage. Peoplewho rely on check cashing services have no safe way to save orstore money. If someone stealstheir cash, they can’t get it back.
Prepaid debit cardsprovide some security, but they comewith high fees.
A lack of funds usually drives these badchoices, but poor financial education isa major factor as well.
Low income consumers tend to lack financial literacy. Althoughabundant resourcescan be found online,many underservedpeople reside in rural areas whereinternet access is more limited.
Addressing Loss of Faith inFinancial Institutions
Basic mistrust in the banking system also contributes to the problem. Betterment’s 2018 ConsumerFinancial Perspectives Reportnoted that 83% of all Americansbelieve that banks are no moreethical than they were before the2008 crash, and 22% believe thatbanks are even less ethical now.
For credit unions
to have an impact,
There’s also a common mis-
conception that avoiding finan-
cial institutions makes it difficult
for creditors to find delinquent
consumers. Credit unions can
remind people that bypassing
a bank doesn’t stop collection
calls or prevent creditors from
getting their money. Collection
agents who cannot attach an ac-
count will instead simply garnish
wages – an even more difficult
challenge for financially strapped
The Role of the Credit UnionAlthough credit unions are certainly not obligated to lend topeople with poor credit, they canstill play an active role in helpingthese consumers get on the pathto better financial health. Providing access to financial educationis a great first step. According toa 2019 Kiplinger report, only 57%of Americans were considered tobe “financially literate,” a largegap that credit unions can help fillwith educational resources. Whilethe approach might vary, everyliteracy initiative should at a minimum address credit scores, investment vehicles, debt management and the basics of retirementplanning. To reach the broadestaudience, it’s also important tomake sure that content is available both online and in personwhere possible.
Another creative way to connect to the underserved is to offer “second chance” checking accounts. These products can serveas the first stepping stone to engagement with the mainstreamfinancial system. The accountsdon’t need to have the perks andfeatures of a standard checkingaccount, but they can provideenough functionality to get skeptical or otherwise unfinanceableconsumers to start their bankingjourney.
Finally, credit unions shouldconsider partnering with businesses that offer critical supplementary services to these consumers, such as tools that assistwith credit improvement, creditmonitoring and identity protection. These services can helpadvance and sustain consumerhealth, opening the door to newproducts that were previouslyunattainable.
By acting in the interests ofmembers, offering quality financial education, and partneringwith new and innovative financialservice providers, credit unionscan begin to make a world of difference for underserved consumers in their communities. n
Use Education, Partnerships to Assist the Unbanked
Nirit RubensteinCEO and Co-FounderDovlyPhoenix, Ariz.
A check cashing and payroll advance business in San Pablo, Calif.