Detroiters Without Bank Accounts Are Paying the Price

For poor residents who can’t afford the fees or don’t trust banks, not having a bank account can actually cost them money. The pandemic has only exacerbated the challenges for unbanked families.

(TNS) — Roughly 8.8 percent of households in metro Detroit haven't taken what financial experts call the first step toward economic inclusion.

They don't have bank accounts. And it's costing them big money to cash checks and borrow money outside the traditional banking system.

Need to cash your stimulus check? Call a local party store or check cashing store in metro Detroit and it could cost you around $60 to $100 just to cash a $1,400 stimulus check at some spots.

The bigger the check, the more money you're handing over if the fee is based on a percentage of the check's dollar amount. Check cashing fees can be 6 percent or more in some local outlets. A $4,200 stimulus check for a family of three could trigger $252 in fees if the store has a 6 percent fee. Michigan does not have a law that limits or puts a cap on how much a business can charge you to cash a check.

Consumers Without Bank Accounts Face Ongoing Costs

The problem doesn't disappear with what could be the final round of stimulus checks.

The $1.9-trillion American Rescue Plan calls for sending the Child Tax Credit to families in periodic installments of $300 or $320 from July to December. The rest would be claimed as a credit on the 2021 tax return. Low- and middle-income families could receive $3,600 for children 5 and younger and $3,000 for those ages 6 to 17.

The objective is to drastically cut child poverty.

If someone doesn't have a bank account, though, they could be looking at check cashing fees. And paying sizable dollars to cash those checks defeats the purpose of that stimulus money, said David Rothstein, senior principal at the Cities for Empowerment Fund, which leads a Bank On initiative to expand affordable banking access.

"These are public dollars that are supposed to go toward fighting the COVID recession and child poverty," he said.

The percentage of unbanked consumers in the Detroit-Warren-Dearborn region is far higher than the 5.4 percent of U.S. households and the 5.7 percent of Michigan households that are classified as unbanked in the latest "How America Banks" 2019 survey by the Federal Deposit Insurance Corp. The next survey will be fielded in June, with a report expected in 2022.

The FDIC survey indicated that 13.8 percent of Black households were unbanked in 2019. Among Hispanic households, 12.2 percent were unbanked. That compares with 2.5 percent of White households.

Why Are Some Avoiding Banks?

The top reasons given for not having a bank account include not having enough money to meet minimum balance requirements, not trusting banks, bank account fees are too high, and bank account fees are too unpredictable.

The numbers of unbanked are expected to grow following the COVID-19 pandemic, given the rapid increase in the unemployment rate and the lingering loss of 8 million jobs across the country since the pandemic hit the U.S. more than a year ago.

FDIC surveys show that those who are unemployed are four times more likely to fall into the unbanked category. They don't have direct deposit of a regular paycheck to qualify for some banking accounts. They may face financial challenges that trigger a string of unaffordable overdraft fees — and a bank or credit union account could risk being closed.

Millions of consumers — including people of color — aren't able to easily cash a check or visit an ATM because they're not customers of regular banks.

In a positive twist, some options have opened up for those trying to save money when cashing a stimulus check.

Chase Bank, for example, will cash stimulus checks with no fee for non-customers at all Chase branches.

Kroger stores are offering free check cashing for government checks, including stimulus checks.

But even so, not having access to a bank account — where you might be able to pay bills online — when offices or stores are closed hurt consumers during pandemic protocols.

"Both COVID and the recession that immediately followed really did exacerbate the challenges of being unbanked for families," Rothstein said.

"They were literally shut out of the economy and that was almost overnight."

A New Campaign to #GetBanked

The FDIC has launched a #GetBanked promotion to help 7.1 million U.S. households without a bank account find an affordable option, such as a "checkless checking account" where you can use a debit card instead of writing checks. See www.fdic.gov/getbanked.

One reason to "Get Banked," according to the FDIC: "When your money is direct-deposited into an FDIC-insured bank account, you get access to your money sooner than you would with a paper check. You can also save money by not having to pay check-cashing fees."

In October, the American Bankers Association called on every bank in the country to consider offering "Bank On-certified accounts" to expand access to banking services and reduce the number of unbanked and underbanked Americans. More than 40 banks offer such accounts today. The minimum opening deposit could be $25 or less.

The Bank On accounts charge small fees or no fees, have low monthly maintenance fees and no overdraft fees.

A key feature for many financially challenged consumers is the fact that the Bank On accounts make it structurally impossible for you to overdraft and trigger those costly fees.

Overdraft fees can be $30 or $35 a pop. And if you have four small checks that bounce at once, you could be looking at $140 in fees being triggered from one mishap.

"There are a lot of people paying hundreds of dollars in fees," Rothstein said.

PNC, Others Offer Affordable Options

In Michigan, 10 financial institutions offer a Bank On account to consumers here, including Bank of America, Troy-based Flagstar Bank, Detroit-based First Independence Bank, PNC, KeyBank, Chase and others.

PNC announced in late March that it now has two certified Bank On products to offer consumers — Foundation Checking and the PNC SmartAccess Prepaid Visa Card.

Cathy Niederberger, PNC’s director of Community Development Banking, told the Free Press that the products can help many people who are looking for what she calls a controlled environment when it comes to possible fees or overdrafts.

The goal is to provide banking options for customers who may not have had access to traditional checking or savings accounts.

Some consumers might not be eligible for a traditional banking account because they bounced too many checks in the past or they have too many unpaid bank fees.

Or some college-age consumers might want a product where they cannot overdraw from their checking accounts, Niederberger said.

In order for Foundation Checking to qualify for its Bank On certification, PNC reduced the monthly fee on that product from $7 to $5 and eliminated the overdraft fee, which was $36.

The $5 monthly service charge associated with Foundation Checking is waived for customers aged 62 or older.

"We call it a second-chance checking account," Niederberger said.

The Foundation Checking account includes a money management course that that is available on mobile devices. The account also offers low-balance alerts.

PNC Bank said it is the first bank to offer two products that meet the Cities for Financial Empowerment Fund’s Bank On national certification.

"Our goal with SmartAccess and Foundation Checking is to help customers enter the banking system and to remain in it," said Bonnie Wikert, head of PNC’s Retail Segments and Deposits, in a statement.

The SmartAccess Prepaid Visa Card allows direct deposits of your paycheck or government benefits but it does not include a checking account. The prepaid card includes a mobile app, access to online banking, low-balance alerts, no overdraft fees and no fees for cashier’s checks. Fee-free cash withdrawals are allowed if the money is taken out at a PNC-operated ATM.

The SmartAccess card offers consumers a way to get their tax refund directly deposited onto that card, too.

SmartAccess also has a $5-a-month fee and some other fees, such as a $2-a-month fee if you wanted a paper statement sent to you each month. (The monthly fee is waived for primary cardholders who are employed by PNC.)

While the SmartAccess card and Foundation Checking are available within most PNC markets, individuals should check with their local branch or servicing center for more information.

Understand What Account Works Best for Where You Live, Work

Consumers should research the online services and fees associated with the different Bank On products, as well as where ATMs are located, whether near their jobs or homes.

Again, many options exist at JoinBankon.org.

First Independence Bank has a Bank On-certified First Choice Checking Account for someone establishing their first checking account or needing a second chance.

The First Independence First Choice account does not offer paper checks but instead enables customers to use free online banking, including features for making mobile deposits and paying bills. The account includes a Mastercard/ATM Debit card.

There's a $3 monthly maintenance fee. Customers would pay an additional $2 a month if paper statements are requested.

Troy-based Flagstar Bank offers a Bank On-certified SimplyOne account with a $5 monthly service fee and no minimum balance. The account can be opened with as little as $1.

The checkless-checking account has a free debit card and offers free online banking services. Customers would pay a $1 fee for each money order.

Online and mobile access are provided so customers can check balances, view transactions, pay bills and transfer funds between Flagstar accounts. You cannot take a photo of a check to deposit it into this type of account, which is the case with many types of second chance accounts.

Deposits can be made in a branch, at an ATM, and via direct deposit.

"SimplyOne is available to anyone. However, it was designed for people who may have had trouble qualifying for, or managing, a standard checking account," said Susan Bergesen, corporate communications specialist at Flagstar Bank.

"If someone applies for a checking account and doesn’t meet the meet the minimum qualifications for a standard account, and they have no record of fraudulent or forcibly closed accounts, we will offer them a SimplyOne account," she said.

Bank of America has an Advantage SafeBalance Banking account, which is a certified Bank On product. It is viewed as a checkless banking option.

The Advantage SafeBalance account has a monthly fee of $4.95 but charges no overdraft or non-sufficient fund fees. But there is no monthly maintenance fee for eligible students under 24 years old and members of Bank of America's Preferred Rewards program.

"It is a very popular account for students and allows for sole ownership for clients 16 and older," said Donald Vecchiarello Jr., senior vice president of media relations at Bank of America.

Advantage SafeBalance Banking, which was launched in 2014, has more than 2.5 million clients.

No minimum deposit or balance is required. Consumers can pay bills online, via the mobile apps and by using the debit card.

The Discover Bank Cashback Debit Checking Account is an online checking account with a debit card and it has no monthly fees.

Cashback Debit has no minimum balance requirement. In addition, the Discover card offers 1 percent cashback on up to $3,000 in debit card purchases each month, such as when you're buying groceries or spending elsewhere. Some transactions, such as a purchase made through PayPal, may not qualify.

The applicant must be a U.S. citizen, U.S. resident alien or other U.S. person, at least 18 years old, and have a valid tax ID number and U.S. address. Discover may obtain information from consumer reporting agencies to help Discover determine if it will open the account for an applicant.

Consumers can sign up from anywhere digitally. The 60,000+ ATM network for no-fee transactions includes the Allpoint and MoneyPass networks.

Financial empowerment advocates note that without a bank account, paper checks need to be cashed in person and that can continue to be challenging for many during the pandemic.

The ability to avoid outrageous check cashing fees alone makes the idea of getting banked — and discovering the right, affordable account for you— all that more appealing.

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