Number of Unbanked Households Drops to a New Low

Inside Subprime: Oct 24, 2018

By Lindsay Frankel

The Federal Deposit Insurance Corp. (FDIC) recently found that the percentage of unbanked Americans has reached an all-time low. The results come from the 2017 National Survey of Unbanked and Underbanked Households, and this is the third consecutive year that the survey showed improvement from previous figures.

According to the survey, about 14.1 million adults in the U.S. lack a bank account, or approximately 6.5 percent of households. In 2015, 7 percent of U.S. households were unbanked. The downward trend indicates improving financial health for low-income Americans.

Improvements for black and Hispanic households were even more significant. The number of unbanked Hispanic households dropped from 18 percent to 14 percent in just four years, while the number of black households that lacked a bank account decreased from 20 percent in 2013 to 16.9 percent in 2017. Still, unbanked rates were higher among young people, minorities, low-income families and less-educated households.

While figures have changed, survey participants’ reasons for being unbanked remained constant. The primary reason participants cited for not having a bank account was “not having enough money.”

The survey also revealed that 19 percent of U.S. Households are “underbanked,” meaning they use alternative financial services, such as payday loans and pawn shops, in addition to having a primary bank account. Also, roughly one in five Americans lack a mainstream credit file and are considered “credit invisible,” making it difficult for these individuals to open a credit card or get a mortgage.

The FDIC survey also found that 12.9 percent of households had a need for small-dollar credit that was not met by mainstream financial institutions. This figure was down from 2015, and a greater percentage of these households were able to stay current on bills.

Being unbanked puts significant financial stress on the nation’s most vulnerable populations. Unbanked Americans are unable to complete online transactions and often turn to pricey check cashers to pay their regular bills. Not having a bank account also makes it impossible to buy a house, use a credit card, or take out a loan.

While underbanked Americans have more access to financial services than unbanked Americans, options are limited for those who have bad credit or are unscored. Often, these individuals turn to payday loans in times of financial need. While payday loans offer quick access to cash, they come with high interest rates and fees that critics say trap borrowers in debt. The payday lending business model depends on borrowers taking out repeated loans, with 75 percent of revenue coming from borrowers who took out more than 10 loans in a year.

While the percentage unbanked in the U.S. is trending in the right direction, vulnerable populations are still disproportionately impacted, and millions of Americans have financial needs that aren’t being met. FDIC Chairman Jelena McWilliams stated, “The good news is that our nation’s banking system is serving more American households than ever before. The bad news is that even as the overall number of people who are unbanked has declined, 8.4 million households continue to lack a banking relationship.”

For information on predatory payday loans, check out all of our Subprime Reports.

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