Advocates fight for 'underbanked'

A sign for a "payday advance"


Steve Chiotakis: There are a lot of people -- many of them poor -- who don't even deal with a financial institution. At a conference today in Washington, consumer advocates and lawmakers will turn a spotlight on the so-called "underbanked." Marketplace's Mitchell Hartman reports.

Mitchell Hartman: Imagine for a second that you're one of the 50 million or so Americans without a checking account or a credit card. You live paycheck to paycheck. Then, the car breaks down. And the rent's due.

MELISSA KOIDE: Consumers will turn to these higher-cost products, including payday loans, which unfortunately can really escalate in terms of the cost.

Melissa Koide of the New America Foundation says the solution is to bring people living "off the credit grid" in, so they can borrow on reasonable terms in an emergency, and start saving to build financial security.

Arjan Schutte of the Center for Financial Services Innovation says, with access to credit down in the recession, new models are needed.

ARJAN SCHUTTE: At once to provide powerful new capabilities and protections to consumers, but on the other hand, not to stifle innovation.

Innovation can be as simple as letting low-income consumers build a credit score by showing they pay their utilities and rent on time. And advocates say, while new laws are needed to protect consumers, banks need to be encouraged to reach out to people just starting down the credit road.

I'm Mitchell Hartman for Marketplace.

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.
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When I was a kid, my folks could get a $500 or less, no major collateral, loan from the local bank.

Now as an adult so-called "local" banks won't lend you small loans with out a line of home equity credit. Not everyone owns a home; many rent so no small loan.

If I needed a couple hundred dollars to fix my car I would have to use a credit card or a payday loan place because they are the only ones who will make small loans anymore.

A couple hundred dollars is a lot of money for me because I am poor. But because I'm poor my business is not worth the bank's time.

One of the many reasons the poor are "unbanked" is because there are no banks for the poor.

I cringed and laughed at just how out of touch even our "advocates" can be. I am a single mother, and in earlier years I made just enough money to disqualify me from any goverment assitance. Struggling through day to day, no insurance for my child, there was never a dime to save and I was lucky to get bills paid on time. You know it's tight when your grocery budget for a family of 2 is $25 a week. A car repair would but us on the edge of eviction.

Yes, there were times when a paycheck advance was the only institution would touch me, when you are poor and living paycheck to paycheck it is hard to pay bills on time or save and your credit rating usally is the first to suffer.

It seems limiting interest paycheck advances can charge, and better financial education starting in elementary schools would be a better start than telling banks to loan money to people who probably don't have the money to pay back a loan anyway.

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