The Inclusive Economy
What Banks Could Learn From Fringe Financial Service Providers
By Sean Luechtefeld on 03/23/2012 @ 11:30 AM
Yesterday, I came across a New York Times article that I re-posted to JoinBankOn.org about the challenges facing those without bank accounts. The article was largely unremarkable for those of us working in the financial access field; it chronicles 45-year-old San Francisco resident Joey Macias, who, after a dispute with a major financial institution, turns to fringe financial service providers to access his paychecks and keeps any leftover cash at home.
While this story is all too familiar, what did strike me was the comment made by Anne Stuhldreher (longtime CFED friend and Senior Policy Fellow at New America Foundation), who was interviewed for the story. Anne’s argument is that financial institutions have a lot to learn from check cashers and other predatory lending outlets. First and foremost, “they’re convenient,” Anne says.
This got me thinking: what if your local Wells Fargo or Bank of America branch operated like a payday lender? To be sure, their fees shouldn’t be like those of the fringe financial service providers, and the terms and conditions of lending would need to be presented using transparent, easy-to-understand language. But, given those assumptions, what if?
For starters, payday lenders and check cashing outlets are everywhere, especially in low-income neighborhoods. The sheer number of outlets alone is a convenience that can really benefit a good portion of the population. In my community, for example, the national bank I use only has two branches within a 20-mile radius. Having more branches closer to home would be beneficial, especially for individuals who lack access to a car or who don’t live along good public transportation routes. Furthermore, as Anne points out, many of these outlets are open 24 hours a day. If banks and credit unions had 24-hour outlets, people could access their money before or after work without being forced to skip lunch breaks or take time off.
In addition to the convenience factor, banks might be in the position to offer check cashing services similar to those offered by payday lenders, but at much lower rates. The Times article indicates that major financial institutions are already providing credit to payday lenders; simply cutting out the middle person and offering those services directly to consumers would mitigate the cost to the consumer and the risk to the institution.
Ultimately, it might not be the perfect system; a zero percent unbanked rate is unlikely any time in the near future. But, payday lenders and check cashing outlets offer a valuable service, albeit one that is far too costly, especially for those most likely to use them. If these same services were offered with lower (or no) costs, it would be a win-win for consumers and service providers alike. Banks and credit unions seem ideally positioned to offer such products.