Credit unions have seen their memberships surge as bank customers dissatisfied with high fees and poor service have started taking a stand. Make no mistake – this is unequivocally beneficial to those former bank customers.
But for the most part, they are leaving their banks because debit card and checking account fees are a nuisance. Remaining silent are those whom these fees forced out of the banking system altogether.
The unbanked and underbanked are without a doubt an at-risk population. They face significantly higher risk, have difficulty saving, and rely on loan sharks, payday lenders and others who take advantage of their situation.
These are the people who need credit unions the most. Bank Transfer Day encouraged people to move from banks to credit unions. While the memory is still fresh, we should encourage the unbanked to move from cash to safe, fee-free, honest checking accounts.
For low-income families, the fees are just too much
A recent study by the Pew Charitable trust tracked 2,000 low-income, mostly Latino families in Los Angeles for two years. Half of those households were banked, the other half unbanked. In that time, 130 of the previously banked households closed their bank accounts, a plurality citing fees as their primary motivation.
Even before a household opens a checking account, it faces significant barriers to entry. According to the survey, half of the unbanked said that the main reason they didn’t open a bank account was that they couldn’t make the minimum deposit. Another 12% cited concern over fees.
The report shows that banks are bleeding these low-income customers dry. Those with bank accounts often used out-of-network ATMs, incurring high fees on the order of $162 a year.
And as minimum balance requirements rise, fewer and fewer can spare the cash. Banks are not only keeping low-income households out of the system, they’re forcing them out as well.
But once out of the banking system, the households fared poorly. They incurred high fees with remittances, check cashing and money orders, services a bank could have provided at a lower cost.
They were less likely to save money, and more likely to rely on costly products like prepaid debit cards whose hidden charges make even the most fee-ridden checking accounts look reasonable.
Credit unions can offer a lifeline, and not just for checking
This is where credit unions come in. Many concerns, real and perceived, that deter low-income households from opening accounts are not even on the map for many credit unions. They can offer free checking with low minimum deposits, a wide ATM network or out-of-network fee reimbursements, and help in avoiding perilous overdraft fees.
Credit unions offer a safe haven for low-income households forced out of the banking system.
And the benefits don’t stop there. Once the relationship has begun, a credit union can offer any number of services. Savings accounts encourage households to put money aside for retirement or college, earning interest but also providing a safe place to put the money.
Credit unions can also serve as an alternative to predatory lenders, check cashers and payday lenders who charge high fees or interest rates. If a credit union offers check cashing, bill payment or remittance services, it can spare a household those egregious terms. The benefits of entering the banking system are too many to be counted; credit unions can play their part in helping people access those benefits.
Another movement, this time for the unbanked
Bank Transfer Day spurred disillusioned bank customers to move to credit unions, providing the impetus to finally close their accounts. We can harness the energy of Bank Transfer Day and spark an Unbanked Transfer Day, where we reach out to low-income communities in an effort to bring the unbanked back into the system.
High, hidden fees cost them dearly. We can remedy that by actively seeking out this largely silent population and helping them secure their financial futures.
Tim Chen is founder/CEO of NerdWallet in San Francisco.