Rise in Black Households’ Banking Reflects Success of Local Program

St. Louis Post-Dispatch, October 29, 2014

A local effort to increase the availability of banking services to minority and low-income households appears to be gaining traction, according to the latest figures from the Federal Deposit Insurance Corp.

The percentage of black households in the St. Louis area who were unbanked — that is, didn’t have a checking or savings account — fell to 13.3 percent in 2013, a sharp decline from 29 percent in 2011. When the survey results were released in 2009, the St. Louis area ranked highest in the nation for unbanked black households, at 31 percent.

Nationally, unbanked black households fell to 20.5 percent last year, down from 21.4 percent in 2011, according to the FDIC’s National Survey of Unbanked and Underbanked Households report released Wednesday.

The highest unbanked rates in the U.S. are among non-Asian minority households, lower-income, younger and unemployed households, the FDIC survey found. Unbanked Hispanic households in the U.S. fell to 17.9 percent in 2013, down from 20.1 percent in 2011.

The large number of unbanked minority and low-income households in St. Louis revealed in past FDIC reports spurred local nonprofit leaders, bankers and others to take action. The St. Louis Regional Unbanked Task Force, organized in 2011, has focused on increasing the availability of banking products while convincing those who pay high fees to cash checks and access other financial services to instead open a checking or savings account.

“It’s reflective of the collaborative work we’ve been doing with the task force and Bank On Save Up,” said Jackie Hutchinson, co-chair of the task force and vice president of operations at the nonprofit People’s Community Action Corp., which provides food, clothing, financial literacy and other services in St. Louis. She called the latest FDIC survey results encouraging.

“When people have bank accounts, they move on to participate in the economy,” Hutchinson said. “We’ve seen people go from unbanked to getting an account and purchasing a car or home. It improves the economy as a whole in the St. Louis area.”

The group’s first initiative, Bank On Save Up, started in February 2013 with a goal of opening 20,000 accounts in the St. Louis region within two years. Similar Bank On initiatives formed across the country after the first program was started in San Francisco in 2006.

When it formed locally, 18 banks and credit unions said they would offer accounts requiring low minimum amounts to open, access to free online banking services and safeguards to help customers avoid overdraft fees. The number of banks and credit unions now offering the Bank On accounts locally has since grown to 20.

Since its debut, the Bank On program led to 2,435 new accounts through the second quarter of 2014, far short of the goal. But Hutchinson said some partner banks didn’t yet have the ability to capture the accounts attributed to Bank On through their current data systems.

Families save an estimated $2.9 million annually that they otherwise would have spent on fringe financial services such as payday loan fees, according to the task force. Additionally, the Bank On accounts have a 95 percent retention rate, higher than the initiative’s 80 percent goal when the program started.

“In an era of declining wealth, it’s good to see a greater number of banked households,” said Ray Boshara, director at the Federal Reserve Bank of St. Louis’ Center for Household Financial Stability, adding that banking accounts are an essential first step to financial stability.

Boshara said that in addition to traditional brick-and-mortar bank branches, many people were using technology to better manage their finances. “Technology is bringing the cost down, and we’re seeing more apps that help people manage their money in real time, he said.

REGIONAL LOOK

The percentage of households in the St. Louis region that don’t have a checking or savings account dropped by more than half to 4.2 percent between 2011 and 2013, according to the latest survey results from the FDIC.

The last time the FDIC did the survey, in 2011, an estimated 9.7 percent of St. Louis area households were unbanked.

The FDIC’s report estimates the percentage of unbanked households dropped to 7.7 percent nationally in 2013, down from 8.2 percent in 2011.

The survey estimates 9.6 million U.S. households are unbanked, down from about 10 million in 2011. Those 9.6 million unbanked households represent 25 million people in the U.S. age 16 and over who lack a checking or savings account.

In addition, the FDIC looked at households that had bank accounts but also used expensive alternative financial services such as payday loans, pawn shops or rent-to-own services in the past 12 months. These “underbanked” households remained at about 20 percent nationally.

The FDIC conducts the survey every two years in partnership with the U.S. Census Bureau. At an advisory committee on economic inclusion meeting Wednesday morning, Ryan Goodstein, a senior financial economist in the FDIC’s Division of Depositor and Consumer Protection, said the decline in unbanked households was because of improving economic conditions, such as lower unemployment rates and higher household income.

Additionally, changing demographics as American households are older and better educated attributed to the decline in unbanked households, Goodstein said.