The Unbanked

The term ‘unbanked’ sounds distinctly zombie-like.  But it refers to the evidently 28 million Americans, heavily Latinos and African Americans, who don’t have bank accounts.  Two very different articles that appeared in the New York Times Magazine of Nov. 9, 2008 tackled the question of ‘how do we find ourselves in this financial crisis’ by considering people who fall outside the banking and credit system altogether.  Rob Walker’s short piece, “Social Currency,” covers the phenomenon of pre-paid credit cards such as the Visa Rush Card, which offer the convenience, and more distinctly, the status, of plastic.  With sexy endorsements by the likes of Russell Simmons, these cards are meant to make one look affluent and also offer an alternative to the high fees involved with check-cashing.  What’s striking about this piece and the more extensive one on check-cashing businesses by Douglas McGray is the tendency to glamorize as “financial subculture” the anti-establishment, profit-hungry establishments catering to low-income neighborhoods that can’t afford the rigid standards and hidden or punitive fees of traditional banks and credit cards.

Here is McGray on the rise to success of Tom Nix, a southern Californian entrepreneur and co-founder of a hugely profitable chain of check cashers and payday lenders:

“They built a whole new financial subculture, which now includes regional giants like Nix, national brands like Ace Cash Express, Advance America and Check ’n Go and thousands of local chains and anonymous corner stores — more outlets, in total, than all the McDonald’s restaurants in the United States plus all the Starbucks coffee shops. Inside, it’s like banking turned upside down. Poor customers are commodities, deposits are irrelevant, bad credit makes for a good loan candidate and recessions can be boom times. Add up all those small transactions and throw in businesses like pawnshops and auto-title lenders, and you’ve got a big industry — $100 billion annually and growing. Nix alone pulled in $28 million in fees last year.”

Of course, he includes a critique of the exorbitant fees charged (30 times the annual interest rate of a normal credit card for “payday loans” that offer 2-4 week cash advances.)  But the title of the article is telling: “Check-Cashers, Redeemed.”  And, of course, it is moving to read about the ground-up initiatives of hiring locally within the neighborhood and operating with absolute transparency–no hidden fees–and certainly this question of low-income, pseudo-banking iniatives is worth exploring.  But given that the poor pay the penalty for poverty in all aspects of life, from groceries to banking,  wouldn’t it be novel to consider instead venues for encouraging and enabling saving?  The innovative post-office savings systems of the U.K. and India, for example, make use of neighborhood outreach; somehow it’s hard to imagine the U.S. postal service selling more than Elvis stamps.


  1. Postal savings system in the US? Of course, we had one from 1911 to 1966.
    My recollection is that it paid very little interest and required dealing with, uh, postal employees, so people preferred banks. I suppose if there are neighborhoods which have post offices but no reasonable banks, it might be worth reviving.

  2. Well, it’s happening the other way around in France: in the wake of liberalization “La Poste” (French postal services) is now turning its banking facilities into a separate, “real bank”.

  3. panik

    Might be worth pointing out that pre-paid credit cards are not only used by ‘Unbankables’ who are no longer able to get credit. They are also likely to be used by people with perfectly good credit raising capacities for the kind of purchases they would not want to appear on their normal credit card statements.

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