Some Thoughts on the Financially Underserved

On June 4, Spent: Looking for Change premiered on Youtube. It’s a powerful documentary on the financially underserved in the United States – people without credit and without bank accounts – and the ends they have to go to in order to survive.

Here, watch the full thing yourself.

There are many reasons why people are locked out of the traditional banking system. For example, more than a million Americans are denied bank accounts because they appear in a database of past banking errors. Others lack qualifying income or adequate documentation.

So, regardless of how successful they are in other aspects of their life, they’re locked out of the banking system. They cannot get a checking account or a savings account. They are forced to operate solely in terms of cash.

The documentary shows several different stories of people who have to struggle because of this, including a successful entrepreneur and several regular families.

How exactly does this happen? Just as banks rely on credit reports and credit scores to determine whether or not to lend you money, they also rely on different bank databases to decide whether to allow you to open a checking or savings account. The largest provider of these databases, ChexSystems, says this on their website:

The Chex Systems, Inc. network is comprised of member financial institutions that regularly contribute information on closed checking and savings accounts. ChexSystems shares this information among its member institutions to help them assess the risk of opening new accounts. ChexSystems does not make account opening decisions for its members. Account opening decisions are made by the member institutions based on their internal policies.

In other words, let’s say you goofed up and made a few overdrafts at your bank. The bank decides to close out your account and they report this closing to ChexSystems (or some other database system). (You can request a copy of your report from them.)

A year or two later, you’re starting over in a new town so you decide to open up a checking account or savings account at the local bank. That bank checks the shared database, sees the problems, and denies you an account.

That’s how many people wind up outside of the banking system. They have to operate solely in cash, using money orders and check-cashing services (and the heavy fees associated with both) to operate.

What can you do if you’re in this situation?

The biggest step you can take is to seek out “second chance banking” opportunities at banks and credit unions in your area. Many banks and credit unions offer these types of accounts, usually with some restrictions involved (such as a stiff daily withdrawal limit or a fee). Generally, these accounts provide a path to a regular account over time.

If that doesn’t work, simply wait. Negative entries in these types of databases tend to drop out after five years, so wait until then and try to open an account at a new financial institution.

Another tip: if you make a mistake and accidentally overdraft your account, handle it directly with your bank as quickly as possible. Don’t delay. When you’re resolving the situation with them, explain your mistake and ask for it to not be reported. While some banks will report as standard operating procedure, other banks give managers the ability to delete such records.

Even if none of these tips apply to you, watch that documentary. It’s really insightful and provides a great glimpse into the financial reality of many Americans who are struggling in the shadows.

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