WASHINGTON—The U.S. Congress Joint Economic Committee (JEC) has released a new report that finds nearly one in five U.S. adults are either unbanked or underbanked, and of the roughly 20% who lack access to a bank account or rely on alternative financial services, a disproportionate share are lower-income earners or people of color.
Entitled, “People of Color and Low-Income Communities Are Disproportionately Harmed by Banking and Financial Exclusion,” the new report makes clear that marginalized communities are those most likely to face barriers to mainstream banking and financing, which leaves few options to access credit and build wealth, the Committee stated.
“This renders workers and families vulnerable to predatory lending practices, such as payday loans, which typically come with steep financial costs and trap consumers in a cycle of debt,” the Committee said.
Key Findings
Key report findings include:
- Black and Hispanic Americans are more than twice as likely as white Americans to be unbanked or underbanked, and families at the bottom of the income distribution are more than six times as likely as families at the top to be among the unbanked or underbanked.
- In many Black and Hispanic communities, check cashers and payday lenders are more common than bank branches and offer more accessible hours, and prior to the coronavirus pandemic, financially underserved, unbanked and underbanked Americans spent an estimated $189 billion in fees and interest on financial products.
- Black and Hispanic households are more likely than white households to be denied or not receive as much credit as requested when applying, and the racial gap in credit access widens for consumers with family income greater than $100,000.
‘Economy Wide Losses’
“Access to banking and financial services are vital to actively participate in our economy. Yet too many workers, consumers and entrepreneurs from low-income communities and communities of color are being underserved by our financial system,” said Don Beyer, JEC chairman. “Barriers to full financial inclusion—like banking deserts and predatory lending practices—harm not only the marginalized communities that are directly affected, they also cause economy-wide losses by exacerbating racial and wealth inequality. The body of evidence shows that ensuring all workers and families can fully participate in the economy expands economic activity and ensures economic growth is stronger, stable and more broad-based.”
Senator Weighs In
Added Sherrod Brown (D-OH), chairman of the Senate Banking, Housing and Urban Affairs Committee, “Low-income communities and communities of color have been burned over and over by our financial system, so it’s no wonder they don’t trust banks and face huge barriers to opening a bank account, cashing a paycheck, and applying for a loan. As we work to create a more inclusive and worker-focused economy, we must eliminate discrimination in our banking system, protect Americans from financial predators, and expand access to quality financial services for everyone.”
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