NCPA - National Center for Policy Analysis

More Americans Opting Out of Banking System

September 17, 2012

As Americans continue to deal with one of the worst recessions in history, many people are opting out of using banks and instead relying on check cashers and payday lenders. This is problematic because most Americans turn away from banks because they don't have funds to justify the cost of keeping an account, but the alternative can result in high fees and interest rates, says the Washington Post.

A study released this month had several findings about the interactions between people and their banks (or lack thereof).

  • More than 820,000 households opted out of banking from 2009 to 2011, about 8.2 percent of the population.
  • That means that about 17 million adults don't have a checking or savings account.
  • Moreover, about 51 million adults under-bank -- using pawnshop, payday lenders or rent-to-own services rather than banking.
  • Additionally, 28.3 percent of households had either one or no bank account.
  • Of the 28.3 percent, one-third said they didn't have sufficient funds to open an account.
  • In response to this, a quarter of households have turned to using tax refund anticipation loans or money orders.
  • Furthermore, 18 percent of households are turning to prepaid cards, an increase from 12 percent in 2009.

Minorities, young people, lower-income households and the unemployed are least likely to have accounts. As a result, it is difficult for banks to serve communities in these areas because the cost of managing accounts is more than the money they make on them.

  • On average, it costs about $300 a year to maintain a checking account.
  • Because of these costs, banks have closed dozens of branches in areas with a median household income of $25,000 or less and relocated to neighborhoods with a median income of $100,000 or more.

Because of this chain of events, people who don't have bank accounts turn to predatory lending agencies, which can leave the consumer worse off because of high fees and interest rates. This creates a vicious cycle of lending and debt which makes it difficult for lower-income households to climb out of.

Source: Danielle Douglas, "More Americans Opting Out of Banking System," Washington Post, September 12, 2012.


Browse more articles on Economic Issues