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The Real Reason The Poor Go Without Bank Accounts
- gregpilling 13y agoThis comment on the article reflects why many people that I have met personally do not have checking accounts or bank accounts. They are worried about having money seized. From the comment section of the article -"If you would really like to know why poor people regular these establishments I'll tell you why: it's because they keep you off the grid. I used to have a checking account too all my life. But after I lost my job, even though I'm a fulltime single father, the "child extort" kidnappers levied my checking account several times. They just took money at will no questions asked. There was no rules stopping them and nothing I could do. The Sheriff of Nottingham might as well been barging in me and my daughters tiny apartment and stealing all of our shillings. So after the "child extort" agency did this 3 times, I shut down the account. And from that moment forward I just began to live off the grid using cash and money orders. "
- pekk 13y agoI assume this is talking about child support payments ordered during divorce proceedings?
- notahacker 13y agoNot having any paper trail to attract the attention of people and organizations you owe money to is arguably the only rational reason for being unbanked in an urban area of a developed country.
- cryptoz 13y agoI disagree very strongly with that. Here are a few rational reasons that someone may choose to not have their money in a bank: - Moral conflicts. Most banks use your money for purposes that many people consider evil, so choosing to not give them your money is a rational choice. - Lack of trust. Many banks over the last century have run out of money and been unable to honour withdrawal demands/requests. It's reasonable and logical not to trust them to keep your money and give it to you when you ask. - Inconvenience. If you don't have very much money, having a bank account is a drain on your resources (fees, mostly) and your money is not immediately accessible. There are plenty of other reasons, too. Running away from people you owe money to is certainly not the only rational reason for not having a bank account.
- woofyman 13y agoUSA banks are federally insured, so there's no risk in losing your money. Running away from creditors is not a valid reason. They can sue you. They can't directly take your money.
- cdh 13y agoWell, that's not quite true. There is always a small risk of losing some (or even all) of your money, particularly if you have a large amount in your account. Obviously that risk is very, very low for smaller amounts of money.
- bhickey 13y agoThere are risks we should be concerned about, and risks we should not be concerned about. If you stuff money under your matress, the risk of losing it to a house fire or robbery are several orders of magnitude greater than losing it in a bank run. Assuming your account is under the FDIC limit, how could you lose money on an insured account? Suppose there's a massive bank run and the Fed has to print oodles of cash to repay depositors. This leads to runaway inflation that occurs over a very short period. If you could have otherwise exchanged your cash on hand for a different currency, sure you would have lost money. Compared with the actual risks of being unbanked, this is a hallucinatory concern.
- woofyman 13y ago250k is the insured limit. You can open accounts in multiple banks if you have more cash than that.
- _delirium 13y ago> Many banks over the last century have run out of money and been unable to honour withdrawal demands/requests. It's reasonable and logical not to trust them to keep your money and give it to you when you ask. Within the last century, yes, but quite far back within it: the last time anyone with modest amounts of money in the U.S. lost deposits in a bank failure was 1933, the year the FDIC was created. You can still lose money in a bank failure if your deposits are above the FDIC insurance limits, but poor people by definition would not have that much money, so it wouldn't explain their choice not to use banks.
- bradleysmith 13y agono slack in your income, and $35 overdraft fees are unarguably rational motivators to avoid big-box banking.
- arjie 13y agoEven that great Satan, Bank of America, allows you to disable overdraft 'protection'. It's what I do.
- bradleysmith 13y agojust to clarify, I realize there are plenty of options within the 'big box banking' world that mitigate overdraft fees (well, a few options anyway.) What I was saying in the parent comment is that overdraft fees are a perfectly rational motivation to avoid major banks. I personally bank with both Wells Fargo and Bank of America (for convenience, and because several family members that are international do the same; gotta have that free transfer service). I am close with a few people that have foregone banking, and paid out of pocket to have their paychecks cashed where ever they can. As far as I can understand, this is a rational decision if your income does not provide the ability to meet a minimum monthly balance of about $100 of 'slack'. If you've ever worked a menial job for a regular period, I'm sure you'll understand. If your monthly balance variance is < ONE PAYCHECK +/- $50, a $35 overdraft fees represent a significant percentage of your income. These overdraft fees are a profit center for banks. Even if there are options to mitigate them, what motivation do the poor have to pursue them? The burden of proof of utility is on the banks, as far as the poor are concerned. If it seems to be more convenient or cheaper to operate without them, people will. This may be partly due to ignorance, but for the most part, it is because there are small inherent costs associated with a bank account that the middle class doesn't seem to recognize. You CAN operate with less expense with cashed checks and payment cards than you can with a bank account and a debit card. Hobos and junkies would not do so if it were not the case. Hard living makes people rational like a motherf*er. You may forego some potential interest incomes, bank protections, and countless conveniences associated with using a bank account, but when it comes down to brass tax, it just costs less.
- aptwebapps 13y agoHow about the reason given in TFA? If you're living on the edge, financially, cascading fees and fines from a single incident can cripple you.
- notahacker 13y agoThe rational response to concerns about crippling fees is to choose an account without a minimum balance or with low overdraft fees, or preferably no overdraft facility at all. Sure, people living on a financial edge are often less well-informed than the general public when it comes to understanding fees, but it's probably rare for the optimal solution to be paying 2%[1] of your meagre income to the nice guys at RiteCheck, or 20% if you've cashed a bad cheque in the recent past... or eye-wateringly high fees if you actually need to borrow some money
- pohl 13y agoThat may be a rational response, but you need better support for the suggestion that no other possible response is rational.
- 6d0debc071 13y agoBasic bank accounts, i.e. the sort without credit, are very under publicised - and the bank staff don't, last I checked, have to tell you they exist.
- dalke 13y agoYou speaking of rational responses. You likely refer to the rational expectations hypothesis in economics. The default assumption is of course that everyone makes rational decisions, including the poor. Since they are making decisions that you don't think are rational ("it's probably rare for the optimal solution ..."), you conclude that the reason is that the poor people are less well-informed. This makes sense, so long as everyone has equal access to the same services, or at least access to the same services you do, and that there is competition among those services. However, as the author points out, the poor areas are under-served in terms of banking choices, and banks use "private databases like ChexSystems that currently keep more than a million low income Americans from being able to open accounts." Because of the obvious market inequality, you cannot conclude as you did that the people who use RiteCheck are making either an irrational decision or un-informed decisions.
- deleted 13y ago[deleted]
- belorn 13y agoLet me add a small story from my past. While studying, I was quite poor, and rarely had any reserve cash on me. In an effort to secure me against emergencies, I borrowed a small amount from a friend and put it in my bank account. It was not to be used except if the house burned down and I needed a motel or if some other unlikely event occur. After my studies was done, I was unemployed and thus went and sought some social security money to pay rent with. When the first check came in, it was reduced with the amount I had in the bank. TLD: paper trails are contextless, and do not always paint the correct picture. Giving the state this information can be quite costly on a personal level.
- code_duck 13y agoI was talking to my girlfriend last night and she mentioned how her ex-boyfriend doesn't have a bank account. He's actually well off financially, so I wondered why. Indeed, the answer is to avoid wage garnishment for child support.
- fiatmoney 13y agoIt's also not unknown for a state you used to live in to suddenly decide you owe them a large amount of taxes, and take it directly from your bank account.
- code_duck 13y agoLast year, to attend a tradeshow I opened a sales tax account and Wisconsin. As I was engaged in extended travels afterwards, and made no sales taxable sales at the show, I did not file any returns with them. If course, they expect you to file each quarter even if to report zero sales. When I returned it to my house nine months later, I found a wide variety of letters from them culminating in lien on my bank account for about $1500. Why they decided that I would have $10,000 in sales that were taxable, given on my history of never having reported anything ever on a brand-new account, I have no idea. Strangely, others at the show who also failed to ever file did not receive liens.
- EwanG 13y agoSo basically the check cashers have become more like banks, and folks who are short on human interaction value that more than the extra couple bucks a monolith that pushes you to an ATM (that may charge you extra for your withdrawal as well) costs. Wonder if any banks will see this as a proper wake up call...
- Symmetry 13y agoWhat banks can do is pretty tightly regulated and I wonder if it would be legal for a bank to handle the overdraft situation in the aritcle the same way, with deducting a fee from checks cashed over time.
- maxerickson 13y agoBanks have significant flexibility. Capital One 360 (the former ING Direct) handles overdrafts by providing a line of credit. The fees there for short term over drafts are a few cents.
- dylz 13y agoI'm actually somewhat curious, why does CapitalOne fuck everyone in their "traditional banking" over, but generally not screw with [ex?] ING Direct customers?
- philwelch 13y agoWe have very high standards and would immediately abandon CapitalOne in droves if they fucked with us. For years whenever people complained about banks I always said "ING Direct isn't like that". So far CapitalOne hasn't wronged us yet. I suspect it's because they just bought out the business and the same ING Direct people are still running it, and the CapitalOne people know to leave well enough alone.
- idiot900 13y agodylz: Because the moment Capital One 360 started becoming predatory, I'd move my money out to another bank. So far they've been fine.
- Amadou 13y agoThis article validates one my key beefs with "big data" - databases (like chexsystems in the article) remove slack from the system. Humans need slack and only humans can provide slack. In the short term that may seem like a good idea, removing slack appears to increase efficiency. But in the long run it is socially destructive -- we are all people, not just numbers and reducing us to numbers ignores much of the realities of life. When you can't take into account the realities of life, then the imperfect systems that the databases model as perfect fall apart.
- danmaz74 13y agoI remember reading about this in the book "About Face" about interaction design at least 10 years ago. It is a problem good interaction designers already care about. I think it's more a problem of upper management understanding that maintaining some slack can be more important than squeezing every last dollar from every transaction.
- fauigerzigerk 13y agoI generally agree with that, but there is a potential downside to it as well. The slack that humans will cut you is not a right, so it can be taken away at will for completely arbitrary or malicious reasons such as stereotypes against particular groups or even because you didn't bribe a particular offcial. I'm still convinced that your point is correct, but it only works in combination with the utmost transparency.
- bgilroy26 13y agoIt's a tough situation, it has a lot to do with momentum. If these check cashers had profitable local ventures to invest in, they could hold deposits and pay out interest. Because there isn't a lot going on in the area, a deposit/commercial bank isn't interested in the area and in turn, business people in the area do not have as many local sources of capital. In place that need it, entrepreneurship would lead to a rise in saving.
- notahacker 13y agoWe're talking about the US in the twenty-first century: profitable local ventures can borrow money at low interest rates from non-local commercial banks at much better rates than the check cashers could possibly offer. The check cashers don't offer deposit accounts because they couldn't possibly invest their received funds well enough to pay interest after covering the overheads of managing many tiny retail bank accounts with constant withdrawal demands, and their customers are far happier paying a fat commission to get cash than now than a bank account fee to get it later.
- rdtsc 13y agoI can understand this. My mother in law was sick for a while and in a hospital for a few months. During that time she was late on one of her mortgage payments, which she as been faithfully paying for 2 decades. She also took an equity loan to remodel her house. Because of the missed payment they cancelled her equity loan. She went to the bank to talk to them hoping they would understand, but all he heard was how his "hands were tied". She tried telling them she was a customer for years, she had a number of accounts with them, mortgages, car loans from the past, she even paid extra on her mortgage payments often. She explained her medical condition hoping they would understand, but all to no avail. He kept hearing about how all these rules and triggers are automated in the "system" and nothing could be done. She lamented the time when banking was a personal experience just like the article wrote. You went your teller, you'd known for years, they'd ask about your kids. The manager migth know you, might send you a birthday card and so on. I can see how she would be a person willing to pay $5 per check just to get back that personal touch. The article also touched on this, but many people who are poor also don't happen to see a lot of human kindness, sometimes fake customer service kindness is better than nothing, they don't even mind paying extra to get it.
- waterlesscloud 13y agoStop banking with big banks. Go local. When my brother started his business, he moved all his banking to a local bank, one that had only one branch, which was downtown in his town. He's built a personal relationship with them, and the flexibility it's given him has paid off in spades over the year. There's no reason to pay some megacorporation to treat you impersonally.
- teamonkey 13y agoCost. If I bank with a large bank I can use their network of ATMs for free. With a smaller bank I can't withdraw anywhere other than my branch without incurring a ridiculous $3-$5 charge.
- eriksank 13y agoI'd rather pay a well-known, well-understood charge for using the ATM than get charged secretly deeply hidden inside some kind of other fee. The people running these ATM's don't do that for free. How would it be possible that I could use their service for free? When I withdraw cash for free at an ATM, I feel more suspicious and more cheated than when they would charge me 50 cents for drawing 50 dollars or so.
- rayiner 13y agoI'd imagine another reason is they need the certainty of having their money be there. My wife had an account she didn't use since college, and apparently she fell below a balance limit and they charged a $5 fee, which overdraw her and turned into a $35 overdraft charge. Inconvenient for us, potentially a disaster for someone scraping by.
- jlgaddis 13y agoI had the same thing happen several years ago when I moved. I changed banks and left my "old" account open with ~$18 in it. I completely forgot about it until a few years later when I received a letter telling me they had closed the account and I owed them $9.
- RexRollman 13y agoThat's why Walmart has jumped into this. There is a lot of money to be made.
- maxerickson 13y agoIt isn't even that strange. Grocery stores have provided check cashing services for decades.
- protomyth 13y agoWalmart went a bit farther and teamed up with American Express on their Bluebird card. http://www.walmart.com/cp/Bluebird/1099170 http://www.walmart.com/cp/Bluebird/1099170
- deleted 13y ago[deleted]
- mikeash 13y agoI thought this article was fascinating and made me think about all of this stuff in a completely new way. I'm much like the author. I bank electronically. I actually just visited a physical branch today for the first time in months because I had a big wad of cash to deposit, and mobile phone deposit technology hasn't quite reached the level of sophistication needed to handle cash yet. My relationship with my bank is generally simple. They store my money, and occasionally pay it out or receive more. This is almost all automatic. The one thing they do that might actually involve some effort is the bill pay service, where they will actually mail a physical check in some cases. But most of the payees I have set up in their system have electronic arrangements. When I need further service, they're good about it. They answer their phones quickly, they can overnight a cashier's check for a reasonable fee on the rare occasions I need something like that, and they'll call me if something looks like fraudulent activity. But this comes up once a year or less. For the most part, they're basically another appliance for me. We have defined roles and we stick to them. I keep a generous pad of extra cash in the account, never overdraw, never need anything weird, and in exchange, they charge me no fees, even pay me (extremely nominal) interest, and don't hassle me. This works great if you have the responsibility and cash to do it, but it would fall apart if I didn't. If I started cashing bad checks and overdrafting, I'd get hit with fees up the wazoo and I'd pretty much have to leave. Features that are an extreme convenience to me now, like totally automatic bill pay, would become a huge liability. I looked at these places and thought that they offered less service. They don't even keep your money for you, after all! And they charge you for the privilege! But, to their customers, they offer more service. They offer more control over their customers' money. They offer more flexibility and less punishment when bending or breaking the rules. It's a good lesson in not just assuming people are dumb or ignorant. Sure, a lot of people are, but when behavior is this common, there's usually a good, rational reason behind it. I always thought that if I was poor, I'd still be "smart enough" to bank properly with whatever money I had. Now, I wonder if that really would be "smart". I also wonder about financial regulation. I generally favor a "better safe than sorry" approach there, but this might illustrate a downside of that. We've all heard about the trouble that non-traditional companies have had with such regulations, whether it's companies like Paypal, or Simple, or Bitcoin-related businesses. They try to get around the regulations in various ways. Here, RiteCheck is getting around banking regulations by simply not being a bank. I have to wonder if they could offer better service and some of the sort of safety and savings ability we associate with normal banking if it were less difficult for RiteCheck to offer something like an actual bank account.
- aperture 13y agoCurrently, I'm interning at a well known banking wealth management company, and I find the rich like to have the same environment. Birthday cards, get well soon cards, calling the client and asking how they are, helping them with last minute account stuff (like making their visa have a higher cap so that cruise trip can be insured). I think a lot of banking should be like this. I doubt it ever could be, as most banks have very few people, but specialized areas, like this rite-aid, or some wealth banking, have the time to dedicate to these people. Treating people like people, whether it is restaurants, or banking, or anything, makes a business less like a service and more like an experience. It should be something a lot of startup companies on hn should look into.
- deleted 13y ago[deleted]
- smm2000 13y agoI think that most middle class people just do not need any personal services. I understand why rich need it - they have complex finances with multiple sources of income, bank accounts in different countries, tax management needs etc. Poor also may need it - bounced checks, cashflow problems, lack of understanding of financial products. But finances for most middle-class people are plain vanilla - one or two checking accounts, credit card, simple mortgage. They do not live paycheck to paycheck so no bounced checks. There is not much space for personal interactions, especially profitable ones. Get paycheck every two weeks, pay all the bills, move whatever left to investment account. The last time I was in the bank was three years ago to do international wire transfer. Good analogy - when I was poor student with crappy car that was constantly broken, mechanic was important person in my life. Car repair expenses in some months were bigger than my monthly budget and having rapport with good mechanic was important. Now I have newer car that pretty much never breaks and I do not give a damn who changes my oil as long as there is Starbucks nearby.
- belorn 13y agoWhile the alternative financial service providers is taking the road of improved customer service, the banks are going the other way. In Sweden, most ATMs is set at a maximum withdraw of 100$, while a few is set at $300. The bank itself also adds additional restriction of maximum $2000 per week. If you want to withdraw more of your own money, you have to ask permission and give a reasonable explanation why one is taking out "that much cash". Only if the bank approves of your reasons to withdraw money will you be able to do so. All withdraws are of course logged, stored, traded and given away for inspection. I can also be held, for any reason the bank can think of or from outside pressure (like the Wikileaks visa scandal). I fully understand why more and more people chose to avoid banks. Banks are services. If you voluntary give away your money to be owned and controlled by a third-party, they will indeed do so. corrected: month -> week
- RougeFemme 13y agoIn the U.S. you don't have to give a reason for taking out your cash (though withdrawals over a certain amount are reported to the Feds). But there are ATM limits. I always assumed - perhaps naively - that the reason was to keep the ATM from running out of cash too quickly, thus minimizing the cost of replenishing them. And occasionally, on 3-day weekends, I have seen more out-of-order ATMS than usual. . .presumably because they had run out of money.
- mikeash 13y agoMy impression is that it's to limit fraud. If someone steals your card an your PIN, the daily limit keeps the amount they can steal from your account before you discover the fraud reasonably low. If for some reason you need a bunch of cash from an ATM, you can generally call your bank and have them temporarily raise the limit.
- emidln 13y agoIn the past (I haven't tried recently), a call to customer service could raise or remove your ATM limits.
- dmckeon 13y ago
- Geee 13y agoWhy is it exactly that online wire transfers aren't used in the US? As an European, I've not been in a bank since the 1990's, and never written or cashed a check. On the other hand, it's impossible to live without a bank account here. Your bank account is the only place you get paid to, whether it's salary or social security money. Also, you need it to pay your bills or transfer money to your friends.
- bobf 13y agoElectronic ACH is often used in the US, which is basically the equivalent to an electronic check. Actual wire transfers usually have fees associated with them both to send and receive (~$25), and are thus more rare.
- superuser2 13y agoNot often. Harris Bank doesn't even let you initiate an ACH transfer from the website; you have to call or go in. Much of Europe pays for POS transactions with free, fast bank transfers from their smartphones in lieu of credit and debit cards. No checking account, routing number, and 3 business day verification crap.
- maxerickson 13y agoBecause inertia. I expect the greater success overcoming it in Europe is somewhat due to the smaller regulatory units (that is, countries) being serviced by a smaller number of institutions. In a lot of countries, if a handful of large banks say something is so, then it is. That pretty much won't work in the U.S.
- stephengillie 13y agoTo add another reason -- most Americans hear more about wiring money being used to defraud you out of your money than they hear about it being a useful financial tool. I have never heard any bank (or credit union) employee even mention sending money to another bank. Most banks won't even let us put money into another person's account without several pieces of information about the other person, and that person's permission.
- rm445 13y agoThis article has a lot of fluff and before getting to the point. It just seems unlikely that the success of these shops that provide expensive financial services to poor people is all down to the human touch. I see friendliness in the report but not much in the way of personalised service (just the lady with the payment plan). The benefits of paying a percentage to get your money a couple of days earlier are clear enough. But the avoidance of overdraft fees may be the key. When paper cheques have had their day and every non-cash transaction is software talking to a bank server, there will be no need for unarranged overdrafts to exist for every bank account. Accounts that carry no risk of unplanned fees would be a disruptive innovation, given that retail banks seem very addicted to the profits from overdraft fees.
- polynomial 13y agoI agree with your analysis of overdraft fees however what you take to be fluff and not greeting to the point, others may interpret as good writing, or at least a more verbose style than we in the modern tech sector are used to. I thought it was a colorful and well-written article that while anecdotal (plural != data!) effectively conveyed the conclusions this author, who is putatively an expert in the field.
- pessimizer 13y agoI love verbose writing, but only if it's purposeful and spare:) If there's a reason to tell me the color of her shoes, I'd love to hear about the color of her shoes. I don't want to hear about the color of everything in the room, though.
- gambiting 13y agoI have a bank account in Poland,and the account is 1) free to run,no monthly fees 2) cards are free if you spend at least $30 per month, otherwise it is $0.50 per card,per month 3) there is no overdraft(unless you specifically ask for it, I didn't) 4) nobody uses checks,so "unarranged overdraft" is virtually unheard of, I only once went "under" when I sent a large sum abroad, but then a few days later when the money actually left my account the price of euro changed and I was charged slightly more, putting me a few Zlotys under zero. I just quickly paid in some money to my account and there was no fee for that. So how does the bank make money off me? It must be by investing the money they keep for their customers,because I certainly am not paying them anything. I've had an account with them for the last 5 years, and paid exactly $0 in fees.
- wavesounds 13y agoTLDR: Check cashiers have better customer service and (anecdotally) less stupid fees.
- muzz 13y agoUnmentioned in the article: New York has strict regulations on check cashing that limit fees. Roughly 2%. Only a few states do this, some limit it at 5%. The check cashing business is very different in those states that don't have such limits.
- patio11 13y agoSome reasons which are cited in the literature, of which there exists lots (http://www.kansascityfed.org/publicat/research/community/Unbanked.Report.pdf http://www.kansascityfed.org/publicat/research/community/Unb... is a good entry point): 1) Many poor people mistrust banks, for reasons ranging from cultural ("Where I come from, they're far more likely to vanish with your cash than the mattress") to personal experience ("I was just going about my business one day but then I ran the account a little low, $300 vanished in fees, my rent check bounced and I got arrested for 'uttering.'"). 2) Banks have some assumptions made about their customers which are institutionalized by practice and sometimes regulation or policy. These assumptions map fairly well to the middle class but sometimes don't travel well. Here's four things I could tell you about an adult member of the middle class: they're literate, have a primary address which changes relatively infrequently, carry identification with them, and do not fear speaking to Authority because they're not cognizant of a reason why that should result in their immediate arrest. 3) "Free checking" was a multi-billion dollar ongoing wealth transfer from poor bank customers to banks and relatively wealthier bank customers. ("Free checking" was a marketing tactic very popular in the 90s and early 2000s where banks eliminated monthly fees for checking accounts while slashing minimum balances to open them. The flipside is that they then started cranking up fees generated by e.g. overdrafts. This combination generally tends to not be to the benefit of (many) poor people.) 4) The alternative financial sector has a product mix which more closely matches poor people's needs than traditional banks. For example, short-term loans for small amounts of money available with minimal documentation required are a) astoundingly high risk, b) relatively expensive to process, c) have fairly low margins, and d) carry explosive reputational risk. These counsel against the typical retail bank even trying to offer them. Much better to loan a middle class American $8k out of a credit card limit of $20k at 12% with a 3% loss rate then to loan a poor person $100 with $110 due a week later. (If you APR-ize that it becomes "A number which one never, ever wants to get asked about when you're called to testify before Congress about how you're causing poverty in the community you serve.") Business thus flows to the alternative financial sector. 5) (The literature is a bit circumspect about this one, but it's there.) Sometimes poor people make decisions which, if you appreciated their limited options, individualized viewpoints of the world, and the sociocultural context and structural issues at play... are still very effing bad decisions.
- 13y ago
- RougeFemme 13y agoI've never been with a traditional bank, even though I've always been able to afford it. I prefer credit unions. I can get all of the "bank-like" services that I need at a credit union and I have the satisfaction of knowing that I'm not further enriching a bank CEO.
- guelo 13y agoBanks have been continually inventing and raising fees on unsuspecting middle-class customers for decades. I wouldn't be surprised if banks made more fee revenue per customer than check cashers.
- r0s 13y agoAbsolutly. Looking for an alternative a few years ago I found a check cashing place that would simply stop payments before a transaction, so you couldn't overdraft. I was happy to pay 1% fees on check cashing for that; with low income that was quite reasonable. Direct deposit had no fee, and this was a great deal for me.
- bluedino 13y agoDon't forget that in poor areas, there aren't many banks. When you're in the suburbs there's a bank on every corner. Even trying to find an ATM in the part of town I work in can be a challenge. They recently built one and it has so many lights an mirrors around it, it seems a bit silly. I'm not sure what the banks use to determine whether they open/close a certain branch. Everyone jokes that 'The First National on MLK Boulevard got robbed twice a month so they shut it down', but I'm sure there's some real process with population density and more importantly, income density. When you cash your check at a liquor store, two things happen - you end up buying things like food for your family (as well as beer + cigarettes + lotto) and they take a % cut. The bank doesn't have anything for you to buy and they don't take a cut. This also means the poor can't pay their bills online. Again, in the bad side of town on Fridays and on the 1st and 14th of the month, there are massive lines outside the power company, city water department, and cable company. Everyone's standing there waiting to pay their bill in cash. While the rest of us pay everything from our smartphone or have it directly taken out of our accounts, they're spending two hours in line during the day.
- blahedo 13y agoWhen I read an article like this, I'm always amazed that more people haven't discovered credit unions. Most of the objections that the article raises about "banks" are objections that I have too, except that they're really about "big (multi-)national banks". My experiences with credit unions have been much more in line with what the author describes about the check-cashers. On one occasion there was an incident involving a mis-typed amount in an online transfer, basically all my fault, but everybody was on my side and it got resolved quickly and easily---and all over the phone, as I was several thousand miles away from home at the time!
- laaph 13y agoI've never been treated that much nicer at credit unions than banks. My last story with a credit union - I had been with them for years, but when I have a story as soon as I ran in to hard times. I was 62 days overdue on my credit card (which was also with the credit union), and I was told the credit card department I'd deposit a check on Friday and make a payment. Meanwhile, the checking department closed my check account, and took the $10 there and applied it to my credit card. Since I had written a rent check before putting a check in the bank and finding the account was closed, it messed me up even more. I'm about to be in difficulties with a current credit union, we'll see how they treat me as my clients keep their outstanding debts to me just a little more outstanding.
- morgante 13y agoThe meat of this article, hidden underneath all the fluff, is simply that fees are higher and poor people end up paying more of them. Honestly though, they probably deserve that. I've never in my life been charged an overdraft fee because it doesn't take much to just track the payments you make and never go over. Of course, an inability to plan is probably why they're poor in the first place...
- bunderbunder 13y agoIt's amazing how much more biting a simple arithmetic mistake can be when you don't have the luxury of being able to accumulate any significant amount of padding money into your banking account. Almost as amazing as how blind we the privileged can be to the myriad advantages we enjoy.
- anaccountonhn 13y agoIgnore trolls please.
- makomk 13y agoIt's not clear he was trolling - there are people who genuinely do believe all that stuff about the poor deserving it and completely fail to grasp the advantages they themselvse have.
- anaccountonhn 13y agoPlease don't troll.
- r0s 13y ago> I've never in my life been charged an overdraft fee because it doesn't take much to just track the payments you make and never go over. That's easy to do if you're not poor. It's a problem you've never encountered, so don't pretend your virtue protects you. Obviously 'punishing' those with no money does nothing. It certainly doesn't prevent overdrafts. The only sane response to this (correctly identified) cycle of poverty: "inability to plan is probably why they're poor in the first place..." is education and help. Your attitude is the pinnacle of intellectual void and laziness.
- saurik 13y agoI am not buying this; I agree that poor people not using banks is an issue, and I appreciate a number of interesting reasons why this is the case (the list iterated by patio11's comment is amazing): I do not, however, think it is because banks are turning into impersonal institutions with which you never interact with a person. Sure: this author doesn't generally interact with her bank. She doesn't see the need to, so she isn't choosing to; but, the bank she is using does have a branch she went to, and if she actually went there at all often the people there would get to know her. The building might be "impersonal", but the people are still people. This doesn't even just apply to small banks (a friend of mine has always used local banks): I use the Bank of America, and almost everyone at my local branch knows me because I go there often and actually talk to them. I seriously look forward to making a wire transfer because I enjoy the interaction with the people I know there. Corporations with local offices are still made out of people; like, while I prefer automated payments, if I end up in a situation where I need to write a check, somehow that's on the other side of "I may as well drive to your office and hand-deliver it"; this meant for a long time I even knew the people who worked at my car insurer ;P.
- a3n 13y agoAnecdote of one: I bank with Wells Fargo, I go inside the branch less than once per month, and I rarely see the same tellers or "bankers" (the ones that sit at a desk) from visit to visit. I think it's pretty high turnover. I don't know the reason, but I suspect it's because the bank is trying to sell me services like insurance, and there's pressure on bankers to make sales. It may also be because a teller or banker job is a young person's first career-like job, from which they move on and up as soon as possible. In fact I hate it when I have to talk to a banker, I get annoyed when they try to sell me services that have nothing at all to do with what I went in for, or with why I'm a customer in the first place. Also, I suspect because of turnover, they usually can't answer my questions when I ask. They just do not know the answer to "how do I do this particular bank-like thing" without researching and asking the branch manager. But man they do know all about their insurance products.
- eriksank 13y agoI think it is actually a good thing that lots of people do not want to use bank accounts. It keeps the alternatives afloat for when I ever need them. Furthermore, I welcome alternatives like bitcoin with open arms. We don't want the banking system to have as much power as they have now. They must be made to cave in and become service providers again, instead of some kind of overlords, over other people's money.
- jlgaddis 13y agoA friend of mine works at a gas station in my hometown (a fairly low-income, rural city, pop. ~4600). After seeing him post Facebook statuses such as "Oh boy, it's the 31st and I get to work tonight" (in a sarcastic tone) a few times, I asked him about it. He tells me that on the last day of every month, there are a number of people who come to the gas station starting as early as 9 p.m. and simply "hang out". They wander in and out of the store but mostly linger in the parking lot, chatting with others in their large group, and simply trying to entertain themselves, in general. Naturally, I asked him why they would do this. Apparently their government "checks" are now "deposited onto their card" (a debit card, basically) at exactly midnight on the 1st of every month. They know that at 12:01 a.m. on the 1st, their money will be available and so they hang out at the gas station in anticipation of being able to load up on cigarettes, basic groceries (more expensive than a typical grocery store, of course), lottery tickets, and such.
- khuey 13y agoThis is a pretty well known phenomenon. http://www.npr.org/2010/10/02/130272928/midnight-shopping-on-the-brink-of-poverty http://www.npr.org/2010/10/02/130272928/midnight-shopping-on...
- a3n 13y agoTo all those who state that it's irrational to be non-banked, remember two things: 1) Just as all the world is not a Vax, all the world is not you and your circumstances and acquaintances and anecdotes. 2) as the article briefly touches on, many people simply cannot get a traditional or even minimal/basic bank account because of entries in ChexSystems. These entries may be correct and current, or they may be old, or inaccurate, or not reflective of current circumstances. And banks are only too happy to outsource the expensive process of judgment and "knowing their customer." No banker ever got fired for following ChexSystems' recommendations (I assume).
- sdolan805 13y agoMy friend had $150k in his bank account that was taken by the IRS while they were still in negotiations on a huge tax bill. No notification, no nothing. He only found out after he was trying to buy groceries and his card was declined. After it was all said and done he ended up owing the IRS ~$14k and they gave him a check for the difference, but it took months to get it all sorted out. I lent him some money to get him through it, but what if he didn't have a friend to do that? He'd be kicked out of his apartment and starving. Now he doesn't trust banks (not that it's the necessarily the banks fault). He keeps around a thousand in his bank for emergencies, and keeps the rest in cash (at an undisclosed location :)). It goes to show that even people with a reasonable amount of money have reasons to keep their money out of banks.
- JEVLON 13y agoI heard of a guy that did that and his ex girlfriend told her new gangster boyfriend (real gangster) where he kept the money. It's probably safer to keep your money in the bank.
- NovemberWest 13y agoIt is generally safer to not tell your secrets to people who have reason to be vindictive. If it hadn't been his stash, it would have been something else.
- thaumaturgy 13y agoHN is so cute. So many people here talking about why poor people do things the way they do without having ever really experienced it. Here's why poor people don't like banks: because banks don't like them. Let me paint you some pictures. You're not clean-shaven. You smell a little bit, whether because you just finished a smelly job or because you're living on the streets or because you're depressed and haven't bothered to clean up in a day. You enter the bank, and no less than four pair of eyes look at you -- eyes that are surrounded by expensive haircuts, ties, and nice dresses or suits. You're exhausted and you can't concentrate well. Maybe it's the chronic lack of sleep, maybe it's malnutrition, maybe it's stress, or maybe it's drugs or alcohol. You walk up to a counter with a check in hand. This paper is worthless to you, what you need is a different kind of paper that you can trade for things you need. The teller asks you if you're a customer. She's polite, but polite in that barely perceptible condescending way that people are when they're uncomfortable with the person they're talking to. You're not a customer. She'll have to charge you for cashing the check then (or maybe won't do it at all -- depending on company policy). Can you be a customer? She directs you over to a desk. The desk has a nice finish on it. It's probably worth more than anything you own. It might even be worth more than everything you own. You sit down at the desk and another person with a polite smile, perfect hair, and a nice tie or suit or dress asks you for some personal information and enters it into the computer. You're poor, so you hate computers. They keep track of you everywhere you go. You can't seem to escape them. The police in different towns all somehow have access to the same information about you. Computers produce paperwork that occasionally makes it into your P.O. Box, or last address, or friend's address, and usually it's bad paperwork: more bad news, more stress, more trouble. Some faceless agency somewhere wants more of what you don't have. This computer is no different. A few keystrokes later, the representative apologizes in that polite-but-condescending way: "I'm sorry, you're here in Chex Systems for account abuse at BigCorp Bank three years ago, we can't open an account for you." This is the sixth bank you've been to. Three years later, after a little bit of luck and a lot of hard work and a struggle that will forever leave a scar on your soul, you've finally reached the five-year expiration period for Chex Systems, you've finally got a regular job with a regular paycheck that is just barely enough to live on. You're set up with free checking at some bank, but you're very very careful not to overdraw your account, ever, because that one time you did it suddenly somehow turned into $250 of money that you owed the bank -- money that you didn't have, because if you did, the bank wouldn't be asking for it. But this morning, your beater car finally crapped out for good and the low-rent apartment complex you live in forbids you from working on it in the parking lot. You can't get to work without the car. You have a little bit of savings, about $100, and you just need to borrow a little bit of money so that you can get another beater and get back to work as soon as possible. Your job doesn't offer paid sick days, so every day you're out of work, you get a little bit poorer. You walk or get a ride down to your bank and you sit down behind that desk, and that computer that you still hate, and you ask the polite-but-still-a-little-condescending nicely-dressed person if you can get a car loan. You quickly add, "I don't need much, only a few hundred dollars, and I'll be able to get this car I saw down the street from my apartment." You make promises and tell the representative how important this is to you, because you're under the mistaken impression that the representative has the ability to make a decision. But it's not up to them, it's up to the computer. The representative politely tells you that they don't do car loans for a few hundred dollars, they only do loans for a couple thousand. You don't need a couple thousand -- in fact, the very idea of borrowing that much is really scary to you, because you're pretty sure that if somebody gave you that much money you'd mess up with it, just like you always do, and then you'd owe a lot of money that you'd have no way of paying back. But the representative tries to get you a couple thousand dollars for a car anyway. The computer says no: you don't have enough credit, your credit is too bad, you don't make enough, you don't have collateral. In short: you are too poor. It doesn't matter that you're a customer. It doesn't matter how hard you're trying. It's just like all your friends say, it's what you hear all the time: banks only lend you money if you don't need it. -- That was me. For years. I'm reasonably intelligent, I've never had a drug or alcohol problem. Still, though, I made a relatively simple decision many years ago, to take a vacation from the computer industry for a while and be a climbing instructor. Unfortunately, while being a climbing instructor was amazing and I'm still glad I did it, it didn't pay very much, and eventually I got into trouble with a bank. The economy started to have trouble then (dot-com bust), my computer skills were more of a liability than an asset, and for the next several years I struggled desperately to keep my head just barely above water. I was homeless for a while. I've got my own business now and my finances are better and I still hate banks. I love the people at my local bank, but I hate banks.
- byuu 13y agoWhen I was 19, I tried to open a checking account. Amazingly, I was declined. For a bank account. I didn't ask for credit, in fact I had no credit history at all. I was apparently so unworthy that they didn't trust me to give them my own money. I never understood that, as I figured they'd just bounce a check anyway if I lacked sufficient funds. I'm much older now, and have a bank account, mortgage, credit cards, and all that jazz. Just a silly anecdote that it's actually possible to be too poor to be allowed to have a bank account.
- DanBC 13y agoYou didn't ask for credit. They make money by giving people credit. You wouldn't have made them any money. You also didn't have any credit history. That's something that young people could be taught: "How to get a good credit rating, without being stupid and getting into tens of thousands of dollars of unpayable debt". The UK has the concept of "basic bank accounts" which are needed so people can have state benefits paid to them. These accounts don't allow debt; don't have credit or debit cards. (Except HSBC I think does issue a debit card with its basic account and other banks probably do to?).
- taejo 13y ago> You didn't ask for credit. They make money by giving people credit. You wouldn't have made them any money. In South Africa, banks are desperate for young customers and all of them have no-fee high-interest savings accounts for children, no-fee checking accounts for students, and so on. On university open days and orientation days, all the major banks have a large presence encouraging students to sign up for these. Most customers never switch banks after opening their first account, so it's highly worthwhile for the bank to be attractive to customers who've never interacted with a bank before (especially if they have money to save as children, so are likely middle or upper class, or are attending university, so have future earning potential). I'm surprised this is not the case in the US (Wells Fargo quite happily gave me a no-fee checking account just after the financial crisis began, when I did an internship in the US -- I assumed the reasons were much the same).
- gambiting 13y ago
- qwerta 13y agoMaybe it is because the services sucks as well. American banks are decades behind Eastern Europe, Russia or even Africa. Just basics: account where 'overdraft' is not possible (account can not go into minus). Debit with low (5%) interest can be arranged separately . My bank had mobile banking in 1999 (simtoolkit & SMS). In 2002 mobile banking become free! Credit card fraud? How about white-listing expected transactions over the internet? How about setting up your own filters?
- elnate 13y agoReading this it sounds like there is a non zero minimum amount you're allowed to have in your bank accout. Is this true? I've never heard of such a thing in my country.
- thyrsus 13y agoIn the U.S., banks can charge you a fee for having less than an agreed amount in the account. They're required to tell you in advance what that minimum amount is (and it may be $0), but they're free to set their policies at will.
- eriksank 13y agoI wouldn't mind the banks so much if they did not lobby the government all the time to stamp out alternatives to their abysmal service ...
- antoncohen 13y agoFor those in San Francisco the city/county government has setup "Bank on San Francisco" to help people use regular banks instead of check cashing places. They have partnerships with banks that allow people to get bank accounts even if they have had trouble in the past. http://www.bankonsf.org/ http://www.bankonsf.org/ Bank on SF also has a small dollar loan program called Payday Plus SF. Their partners offer payday loans at reasonable rates (max 18% APR). http://paydayplussf.org/ http://paydayplussf.org/ I know they don't address a lot of the issues the article brought up, but they could be useful for people in certain situations.
- innino 13y agoShit articles like this make me feel lucky. I don't come an extremely wealthy background or anything but reading this sort of stuff makes me feel like a life-assets superstar. I have to say it makes me appreciate my bank/national banking culture: 1) I can ask for an overdraft limit of up to $2000, which if I draw into I pay a $3 monthly fee for. 2) I have a credit card which I can easily ask for a limit up to $5000 if I ever need that sort of temporary cash (I don't.) 3) Everything is done with banking cards here - balances update automatically, only credit cards have weird lags with responding to transactions. Recently I dropped my OD limit to $200 to try and improve my financial hygiene. I didn't watch my transactions and a small weekly automatic payment pushed me past my arranged limit. Talked to the bank and they explained in that case I would pay one $15 fee per month for any number of unarranged ODs. Seems pretty lenient compared to the American situation... but they never charged me the fee anyway!
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- nell 13y agoThis might be the right place to ask: Can I simply lend money on my own? setup my own site. People request for loan and I choose whom to lend money to. Kinda micro financing. How easy it is to do that? I want to do something like $1000 @ a flat 5-10% p.a What are the risks? Is defaulting a big issue?
- omnisci 13y agoSo this woman spends some time in a cash checking place and now knows why "poor" people don't use banks? Poor people don't use banks because you don't need a bank when you live check-to-check. One doesn't need to make a deposit when the check they just got doesn't cover their expenses from last month. So her concluding statement of "the banking industry needs to develop different fee and service structures designed to accommodate lower income depositors "makes no sense. It's not a choice, it's not like people are like "Hmm, well I could deposit my money and make 0.5% back next month", it's more like "shit, I'm behind on my gas bill and can't have my family freezing again this winter." The fact that the teller at the check cashing place is like "family" and they speak spanish isn't really a reason why the poors go there, it's because they don't have a choice. As an former academic who made it out of the poverty system with some serious work and lots of scars to prove it, this article really pisses me off. Not only due to it's lack of perspective, but due to it's lack of due diligence to actually answer the question they claim to answer in the title.
- pekru 13y agoBeing a citizen of a third world country (India), this sounds all too surprising to me. Looks like banking in the US is pretty shitty for the poor. Out here, banking works like a charm. At least, most of the nationalized banks. Nobody pays the banks anything, and they get a little interest on savings/deposits accounts. OD is not outrageously charged. Internet banking and ATMs are very friendly and totally inexpensive. Almost everyone has easy access to banks; with co-op banks and urban banks offering accounts with minimum limits of 500 INR (~9 USD), everyone can make use of banking institutions. Only those people with lots of black money would want to keep much of their stash away from banks to avoid tax authorities. I am happy that at least our folks got basic stuff like banking right.