Last week, Danielle Jones went to get a personal loan with a 36% to 40% interest rate from Check City on West Broad Street in Richmond. It’s the second such loan she’s received.
“It’s like paying extra money for no reason,” said Jones, a 24-year-old Richmond resident. “But sometimes people are stuck in a predicament where they’re forced to deal with the interest rate because loan companies are so hard and tough on credit.”
And with the pandemic’s impact on work hours, Jones said sometimes there is no other option.
“I’m not really too famous on them, but I mean the time comes, you know bills get tough,” Jones said. “Going through COVID, I’m sure you’ll see plenty of people in here because it’s just backed up or your hours were cut at work, so it’s kind of like forcing yourself to be in this kind of predicament.”
Jones’ financial situation is considered being underbanked, meaning that she has a bank account but has used another financial resource — such as a payday loan — within the past year. If someone is unbanked, they don’t have a bank account at all.
Many households in the region — primarily nonwhite residents — are in one of the two situations.
United Way of Greater Richmond and Petersburg — a community organization providing support and direct services to 11 localities in the Richmond region — found in its most recent equity data series that nearly 30% of Black households are underbanked in the region. For Latinx, Asian and white households, that percentage is 23%, 16% and 13%, respectively.
Comparatively, 16% of Latinx households in the region are unbanked, and for Black, Asian and white households, that percentage is 14%, 2.3% and 2.2%, respectively.
Being underbanked or unbanked can have large impacts on all aspects of life. People who do not bank are susceptible to theft and losing their money in natural disasters because it is not protected. They are also likely to pay thousands of dollars through cash loan services.
A full-time worker who does not have a bank may pay up to $40,000 in fees throughout their lifetime to cash checks, according to the metropolitan policy program at the Brookings Institution.
“There’s a really high cost to not being banked,” said Audrey Trussell, vice president of community impact for United Way of Greater Richmond and Petersburg. “Banking and access to banking has a direct impact on the stability of our economy, because we know that when everyone thrives, the whole community thrives, and investing in access to banking into those services and into empowerment education around that is really critical to a thriving region.”
In the region in 2019, 12.3% of Richmond households and 18.3% of Petersburg households were unbanked. The same year, each of the 11 localities had an underbanked rate higher than 13% — the three highest being Petersburg at 25.1%, Richmond at 22.5% and Charles City County at 20.2%.
Many factors have caused minorities to be more susceptible to inadequate banking access. For example, they may not have deep knowledge or trust of financial institutions due to historical discrimination and racism. And Black and Latino communities traditionally are underserved, said Youngmi Kim, an associate professor at Virginia Commonwealth University.
“I would say they are excluded from the systems. ... If you don’t have sound access, then there’s no way you can use existing services,” Kim said.
The physical location of banks also plays a role in accessing their services. If someone does not have a car or consistent access to public transportation, they may not be able to reach a bank if it is too far.
Areas that have inadequate access to banks are known as banking deserts, which often affect rural areas. Between 2012 and 2017, the United States lost 6,764 bank branches, or 7%, according to a November 2019 report from the Board of Governors of the Federal Reserve System — with 5,432 of those branches being in urban areas.
“Communities who have faced economic injustice, who have been disproportionately affected by systemic injustices ... continue to see a higher challenge in accessing banking,” Trussell said.
For immigrant families, there are additional barriers to starting a bank account, including having a credit history and legal documents, such as a Social Security card, Kim said.
Kim emigrated from South Korea, and her experience starting a bank account was slightly easier because she was a student, she said. But she still had a lot to learn about financial systems, which she said can be intimidating.
“It took me a while to understand this system,” Kim said. “I find a lot of times it’s distrust, but [also] simply a kind of fear of how to start it and where to go.”
Similar to other societal issues, the pandemic worsened banking access, Trussell said.
“What we can assume is that we’ll see perhaps what is referred to as a ‘K recovery,’ so folks who had access to banking will continue to thrive, and then those who didn’t will see a decline,” she said. “So that gap between the two groups will get greater, which means that we need to put more support than we even had before the pandemic into that space.”
Institutions can combat the issue of banking access with education and outreach, Kim said, but there must also be a focus on creating more innovative approaches to make banking accessible at a systematic level. That way, people can still receive government benefits but also participate in the mainstream financial system.
Kim said there should be a larger emphasis on establishing savings. The individual development account model is an avenue for low-income families to save money — their savings are matched and not counted as assets, which keeps them from having their benefits penalized.
Another model is the children’s savings account, which is a long-term account for kids in socioeconomically disadvantaged families that allows them to save money for their future.
“We need to think about some more systematic-level efforts,” Kim said. “Extend some current services, current education, current outreach ... but also we need to think about more creatively what kind of additional innovative ideas to include these underserved communities.”