Mehrsa Baradaran in The Nation:
According to Federal Reserve statistics, about half of the US population would need to borrow money if they had a shortfall of $400 due to an unexpected expense. And as for basic financial services, over 30 million are either unbanked or under-banked—meaning that they rely on alternative financial services. The unbanked pay a significant portion of their paychecks—around 10 percent—to use and move their money. This is more than the average low-income family spends on food. And this doesn’t take into account the time and stress of having to take time off from work to go to the water office to pay your bill.
How did we get here? There was a transformation of the banking sector between the 1970s and the 1990s that was a result of both market changes and policy decisions, specifically a strong tide of deregulation. This caused a merger wave and a homogenization and conglomeration of banks that squeezed the community banks. During this time, the credit union and the savings and loans and other cooperative, public-serving, and limited-profit financial institutions were forced to merge and abandon their missions in order to find more lucrative markets and survive deregulation. They left low-income neighborhoods en masse and instituted fees on smaller, less profitable accounts. Many low-income Americans lost their bank accounts during this time.
The merger wave and deregulation eventually created a banking industry that is the largest and most powerful it’s ever been—and it is completely uninterested in banking the poor. In fact, these banks have even used their political muscle to fight New York legislatures’ efforts to make it just a little easier for the poor to get bank accounts.
Once the community banks and the savings and loans left these communities, payday lenders, check cashers, and title lenders filled the void. These fringe lenders thrive in areas with the fewest banks—and the rise of these lenders was a direct result of the decline of community banks.
How do we fix this problem?
More here.