Quote: “People treat banking like an electric utility where if you flip the switch it has to be there for you. But the truth is banking is a business that aims to makes profits for shareholders,” Nancy Bush, bank analyst. At the end of the day, a bank is in business to make a profit.
But what has been discovered is that there are several banking institutions that purposely target poor people with products such as subprime loans, payday loans & pre-paid credit cards. All of which are laced with high fees. Banks are able to get away with these practices because of limited or non-existent regulations.
In short…if they can get away with it…they will! The bigger problem here is that low-income consumers don’t have much of an alternative when it comes to banking. There’s a growing population of people who don’t have a bank account because they feel they can’t afford it. They are called the unbanked and under-banked; people who don’t have enough funds and/or mostly deal in cash transactions and who say they can’t afford bank fees. They turn to things like pre-paid debit cards which according to the Federal Reserve, is the fastest-growing non-cash method of payment.
Unfortunately, they can also be laced with an alarming amount of fees and a lot less protection than your regular old debit card. Products geared toward low-income consumers have typically been offered by payday loan companies and storefront lenders or even big retailers like Wal-Mart. Consumer Reports analyzed the pre-paid card industry recently and here’s what it found:
- Fees can be high, multiple, and confusing
- Not all prepaid cards provide adequate protection against theft of funds using the cards or card account numbers
- Promised credit lines or features to build a credit record may be expensive and overstated
- Federal deposit account insurance for prepaid cards applies differently than it does for bank accounts and may be capped at less than the value of all of the prepaid cards issued by a particular card program.
In its analysis the group sampled 16 prepaid cards and found 13 of the 16 prepaid cards charge monthly fees, ranging from $2.95 for the nFinanSe card to $9.95 for the Vision Premier card and the Univision card. ATM withdrawal? Twelve of the 16 cards impose a fee for checking balances at ATMs, ranging from 45 cents to $1 per balance inquiry.
So now some banks are getting into the game in a bigger way. As the Times notes, these banks say they’re providing services for customers who might not be able to get banking access without them. That might be true but it’s a weak argument and one that does nothing for the low-income consumer. It appears that non-traditional banking is quite costly for the uninformed consumer.
The lack of resources and financial education is hurting this generation mostly because the previous generation was financially illiterate as well. As a country, we have to do better. We need to do better. We live in a time where a TRUE savings account is a thing of the past. And while banks (like any other for-profit company) have a right to earn money, I believe incorporating an educational factor would be best served especially in low-income areas.
I also believe that consumers of ALL economic backgrounds need to be proactive in their own financial education. School systems are failing in this area but we can not use that as an excuse to remain ignorant of how money works! Unless and until this problem is addressed – we will continue to be a nation that fails financially.
The banks & school systems play a large role in this but we have to be willing to make a conscious effort to literally and figuratively open our own eyes or we’ll be subjected our children to financial slavery because we failed to teach them!
Get your FREE Credit Analysis and know where you stand today: CLICK HERE
Fix your credit BEFORE you need your credit!!
