Hidden, Unexpected Fees Lead Working Poor to Close Bank Accounts

“In today’s economy, where every penny counts, more needs to be done to bring low-income families into the financial mainstream,” said Susan Weinstock, project director at the Pew Health Group. “This data points to a real need for banks to better disclose their fees in a concise, easy-to-understand format.”

The report notes those who live without a bank account expose themselves to risks of theft of unsecured cash and high costs associated with alternative financial services (AFS) providers, such as check-cashing operations.

Pew’s data show that low-income respondents who left banking in the past year either conduct business entirely in cash (59 percent) or rely on both cash transactions and check-cashing institutions (26 percent).

Other key findings from the report:

• More people closed bank accounts than opened them. Despite local efforts to bank the unbanked, more families left banking than joined it between 2009 and 2010. The project finds slightly greater adoption of banking and significantly less movement out of banking in the neighborhoods targeted by Bank on LA, a public–private initiative to bring families into banking. 
• Banked individuals use alternative providers because of liquidity concerns. Almost one-third (31 percent) of banked individuals supplement their banking relationships with services from AFS providers. Four in ten (43 percent) of these customers that use AFS bill pay services are concerned about timing of transaction posting and cash liquidity. Over a third of these individuals (37 percent) indicate that they can pay bills faster at a store-front check casher than at a bank.
• Unbanked families are finding it more difficult to come up with the minimum balance needed to open an account. Fifty percent of the unbanked cite an inability to deposit the minimum balance as the primary impediment to opening an account, compared with 30 percent last year.
• People who are banked are more able to save and are less likely to suffer cash loss.Nearly all banked respondents (94 percent) keep at least some “extra” money in a bank account and nearly nine out of 10 (88 percent) have at least one savings account. Close to one-fifth (18 percent) of people who rely solely on cash have been victims of cash loss, including theft. The average amount lost was $729, equal to nearly two weeks of the respondents’ average household expenses.