Some of us need credit, especially at the end of the month, for food or gasoline, or to pay utility bills. So our first remarks concern that part of the population. Although in 2009 12% of the population had no regular bank account into which to tap, the numbers are higher for Afro-Americans (28%) and Hispanics (30%). When economists write about this group, they refer to them as “low and mid income people (LMI)”. For some, there were no banks available. The number of banking institutions dropped BY 35% from 1975-95 and that included dropping branches in low income communities. Large banks bought up community ones and the number of the latter dropped from 14,000 in 1985 to 7,000 in 20081.3
People are unbanked for various reasons. Some lack knowledge of the financial system, or feel that it does not provide the products that they need. These products include small, short term loans. Others do not find the banks welcoming.4
Currently available help for the LMI people comes from unemployment compensation (handled by The Department of Health and Human Services), and the Earned Income Tax Credit (The Treasury Department). Less well known, except among LMI people themselves, is what are formally called Alternative Financial Services (AFS), more informally referred to as “the fringe economy” or “pay-day lenders.” These include check cashers and “buy-here-pay-here” auto sales establishments.
The AFS places serve both a legitimate function in the areas where low and middle income people live, and at the same time contribute to their poverty. They do make desired short term, emergency loans, but they charge interest rates much higher than that at regular banks and savings institutions.5 AFS stores thrive in poor urban areas and in rural communities or counties with under 50,000 residents.6 They are not subject to adequate state and federal regulation. So one part of any solution to the AFS problem is to implement the missing regulations and control, and eliminate the lenders who do not comply with the new rules. The leadership on this task is coming from the new Consumer Financial Protection Bureau (CFPB), established under the Dodd-Frank financial reform bill (2010).
While IPPA favors the use of community banks for most with regular family bank accounts, it also believes that the long term solution for most of the nearly 30 million citizens without regular banking will be community banks and credit unions. Seventy percent of these families have incomes of less that $30,000. per year. To start using the banks and credit unions, the prospective LMI clients often need financial education. The Treasury Department started the two year Community Financial Access Pilot program back in 2008 to learn how best to provide this education. The FDIC‘s Money Smart Curriculum, which is free and modifiable for local needs, is geared to people without high education levels. From the pilot program, the Treasury Department learned that local partners are needed to implement an initiative. These can be community banks, credit unions, or larger banks. The most useful products the lenders can provide are free- or low-cost checking accounts, with low balance requirements, and limited ability to overdraw.7 Another way the Community Access Pilot Program could assist community banks would be to provide either grants or low-interest loans to mount educational advertising targeted to LMI groups.
3. Phillip Longman and Ellen Seidman, “To Save American Finances, Bring Back Community Banking,” The New America Foundation, November 20, 2008, 8. (http://new
4. Louisa Quittman (U.S. Department of the Treasury), “Community Financial Access Pilot,” in Community Investments, Summer 2010/Volume 22, Issue 2, 34.
5. David Stoesz, “Quick Credit: The Fringe3 Economy, the Great Recession, and the Welfare State,” The New America Foundation, August, 2010.
6. Roy C. Lopez, “Banking and Community Perspectives, Asset Building Taking Root in Rural Communities,” Federal Reserve Bank of Dallas, Issue 1, 2011 (
7. Quittman 37.


  1. PNmom Says:

    I agree that community banks are an important part of the re-scaling that needs to happen to balance the power global corporate banks. Strengthening local community financial infrastructure, and the capacity for flexible decision-making that can adapt to local community circumstances, is key to finding solutions to creating jobs and getting people into homes in local communities. Putting our money into a local community bank or cu also feels like one of the few concrete actions that most of us can take to counter what’s wrong in a global financial system that seems way out of reach. Even the government seems to have little power to change it.
    On another topic, effective ways to engage low income people (who often don’t use banks) in the ‘financial system’ often require that they get some small but immediate financial incentive in return (one example is IDAs–individual development accounts, which match a person’s savings deposits up to an established amount to pay for school, a home downpayment, or to start a small business). Given that pay-day loans are clearly a need in LMI communities, is it possible/legal for legitimate community banks to engage in some sort of similar offering? It would be good to put pay-day lenders out of business because they really do keep people in poverty.

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