• Thu. Dec 1st, 2022

Unbanked Americans at record low

ByCindy J. Daddario

Oct 30, 2022

NEW YORK — The number of unbanked Americans fell to a record low last year as the proliferation of online-only banking and an improving economy draw more Americans into the traditional financial system.

A new Federal Deposit Insurance Corp. report released last week found that 4.5% of Americans — representing about 5.9 million households — were unbanked in 2021. That’s the lowest level since the FDIC began tracking the data in 2009 and less than 5.4% of Americans in the 2019 survey data.

The decline in unbanked households can be partially attributed to the coronavirus pandemic. States and the federal government handed out trillions of dollars in stimulus funds to Americans after Covid-19 shut down the US economy in March 2020. For the most part, the benefit programs required a bank account to quickly send the funds to those affected.

“During the pandemic, consumers opened bank accounts to quickly and securely access relief funds and other benefits,” Martin J. Gruenberg, acting chairman of the FDIC, said in a statement.

However, the FDIC attributed most of the improvement to the stronger economy in 2021 as coronavirus pandemic restrictions largely eased and unemployment was low.

Black and Hispanic households are still far more likely to be unbanked, although these numbers are improving. About 11.3% of black households are unbanked, up from 13.8% two years earlier. For Hispanic households, that number dropped from 12.2% to 9.3%.

The top reasons someone would choose not to have a bank account were largely unchanged from previous surveys. One in five unbanked households said the main reason they don’t have an account is not having enough money to keep an account – a sign that not having a bank account is an issue of economic inclusion remains.

The FDIC began tracking unbanked Americans in 2009. In 2011 data, the number of unbanked Americans increased significantly as a result of the Great Recession. While Americans kept their bank accounts during the coronavirus recession, there’s a chance that the number of unbanked Americans could rise in the future as inflation continues to hurt the economy and unemployment rises.

Other households had privacy and trust issues related to banks. Large companies like Amazon have been tracking consumer data on credit card usage for some time, but banks also use this data.

Americans outside of the traditional financial system face numerous obstacles in their day-to-day finances, which is why policymakers are pushing so hard to get unbanked households to open savings or checking accounts. Check cashing services, utility payment services, unbanked rent payments often come with fees, money that a person with a bank account would not incur.

New immigrants and refugees are also among the people without a bank account. Jhuma Acharya, a former Bhutanese refugee and case manager at Community Refugee and Immigration Services in Columbus, said he’s seeing an increase in customers calling him about businesses that won’t accept their cash.

“I’ve never worked with a single (new) refugee who said they’ve used a credit card in their life,” Acharya said.

Acharya said it typically takes customers at least five months to build up enough credit with banks across the United States to sign up for an account. In the meantime, Acharya said, they’re trying to educate customers on how to build a debit card and use their Electronic Benefits Transfer card.

There is also an increasing number of businesses that are no longer accepting cash as payment, an issue several state legislatures have addressed.

Some states and cities had mandates accepting cash before the Covid-19 pandemic, such as New Jersey, Massachusetts, San Francisco and Philadelphia. However, since the pandemic began, at least seven states have passed such laws, largely in response to the growing number of contactless businesses following CDC recommendations to limit the use of cash amid fears of spreading the virus.

Delaware, New York, Oregon, Arizona, Colorado, Connecticut and Rhode Island have all passed laws requiring businesses to accept cash, according to data from the National Conference of State Legislatures. More than a dozen states have introduced cash mandated bills since 2020. At least three bills in the Republican-majority states of Florida, Mississippi and North Dakota have died in committee, as well as two bills in New Hampshire and Wisconsin, which are held by most Democrats.

In Ohio, State Senator Louis Blessing III, R-Colerain Township, introduced legislation during the 2021 legislative session that would open businesses to lawsuits if they don’t accept cash as payment. Blessing cited protecting immigrants and impoverished communities as drivers of the bill, as well as protecting the privacy of consumers and the elderly, who are more likely to use cash.

The bill is currently pending in the Ohio Legislature.

“I think if this bill were put to a vote, every Democrat in the state would vote yes,” said Blessing, who was mostly rebuffed by his Republican counterparts in the Republican-held state.

The survey also found that the percentage of households known to be underbanked — those who have a bank account but still use expensive financial services like check cashing, pawn shops, payday loans and wire transfers — has also declined.

The FDIC also found that about half of all American homes will use a non-bank payment service like CashApp, Venmo, or PayPal by 2021.

Information for this article was contributed by Samantha Hendrickson of the Associated Press.