WASHINGTON–A new report from the Joint Economic Committee Democrats says people of color and low-income communities continue to be disproportionately harmed by banking and financial exclusion, and among its recommended remedies is expanded postal banking.
Postal banking, which has met with tepid response from consumers in a limited pilot by the Postal Service, is strongly opposed by the credit union trade groups.
“Black and Hispanic Americans are more than twice as likely as white Americans to be unbanked or underbanked,” the JEC-Democrats report states. “Similarly, families at the bottom of the income distribution are more than six times as likely as families at the top of the distribution to be among the unbanked or underbanked.”
According to the report, underrepresented and low-income Americans are more likely than their white and more affluent counterparts to have no usable credit score or to be credit invisible.
“The unbanked, underbanked and those with no credit record are forced to rely on costly alternatives that widen existing income and wealth disparities,” the report states. “These disparities not only limit the economic participation and financial integration of these underserved Americans, but also limit economic opportunity for all.”
Discrimination in Algorithms
In addition, the report further argues that while innovations in financial technology have led to improved equity in some areas, more data and novel algorithms have failed to eliminate discrimination in lending.
“Breaking these barriers to inclusion in the banking industry will require structural policies that directly improve access to banking services and credit, like public banking models,” according to the report. “Alternative credit assessment models for the credit invisible are also vital to help these individuals achieve more economic security and build wealth. Yet, persistent racial disparities in wealth will also require new pathways to asset purchase, like helping historically disadvantaged families buy their first home. Lastly, to reward the faith of investors and consumers in key innovations in finance, Congress will have to establish rules to govern digital assets.”
Other Data Points
Among the statements made in the report:
- The nearly one in five adults that are either unbanked or underbanked are disproportionately low-income and underrepresented Americans who lack access to a bank account or rely on alternative financial services.
- An estimated 40% of Black Americans, 29% of Hispanic Americans and more than one-third of families earning less than $25,000 annually are either unbanked or underbanked.
- People of color and low-income Americans are also more likely than their White and more affluent counterparts to have no usable credit score or to be labelled as “credit invisible” with no credit record.
- Underrepresented Americans are on average about twice as likely as white households to not apply for credit cards or personal loans out of fear of being denied.
Alternatives Needed
“Providing alternative financial services to these historically disadvantaged communities is essential, as this trust may fail to be met given that the lack of comprehensive regulation in this space exposes investors and consumers to fraud and illicit practices,” according to the report. “Narrowing these disparities in banking and financial access will require bold policies that address long-standing barriers and strengthen investor and consumer protection. For example, a public banking option can bring basic financial services like low-cost savings and checking accounts to post offices. Alternative credit assessment models, can also help banks develop the capacity to issue credit cards to consumers with no credit scores under the current system.”
The full report can be found here.
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