Brother, can you spare $15 billion? In this economy, it’s difficult to imagine anyone willingly parting with that kind of cash–yet it’s exactly how much Americans fork out every year in fees to predatory check-cashing services and payday loan outfits.
The standard explanation of this economic sinkhole is that people (especially in low-income neighborhoods) lack convenient access to financial institutions, leaving them no choice but to patronize usurious alternatives, reports The American Prospect (June 2010). It’s a plausible tale, except that a recent study of two New York City neighborhoods conducted by the city’s Department of Consumer Affairs showed no correlation between the number of bank branches and the number of people with bank accounts.
The data got the department’s Office of Financial Empowerment wondering whether financial institutions are providing the sorts of services “unbanked” people need to get into the system. To test the theory, the organization developed SafeStart accounts, partnering with financial institutions to offer a “plain vanilla” product. With a starting balance of $25, no fees, and an ATM card, the easy-to-navigate accounts provide a clean slate for people with poor or nonexistent credit histories. The OFE also provides counseling at financial empowerment centers. In the first stage of the program, 1,800 accounts were opened–and SafeStart is now slated to go citywide.