Why the Poor Don’t Use Banks

Payday loan and check cashing companies have a bad reputation in the media. When I read a report on them they are usually described as predators, loan sharks and opportunists. Considering the high fees they charge, it has often puzzled me why anyone would use them unless they were in dire circumstances or fools.

In an Atlantic Cities article, Lisa J Servon described the insights she gained by working for such an oganization as a cashier. The truth is, banks have become faceless and complicated to deal with while check cashers offer a personalized, flexible service which may be cheaper to use in the long run.

A subsequent article by Professor Servon in the New Yorker points out Pew Charitable Trust findings that while the interest rates charged by payday loan companies add up to hundreds of percent per year, the fees charged by banks on overdrafts would amount to thousands of percent per annum. Banks have constructed their systems to make it easy for people with consistently low account balances to fall into overdraft because they register withdrawals seven days per week but deposits only five days. In addition, fee disclosure statements normally run to over a hundred pages and are constantly amended, making it hard to know when you are doing something that will generate a fee.

I would like to see a return to when a bank manager was an important and recognizable member of the community. There was a time when they were invited to special events held by the local sports clubs and churches. If branch managers held their positions for longer periods, its possible they would get to know more people in their community and treat them more like people than numbers. As things are now, I’m often disappointed to get to know my bank manager and the staff at my bank, only to find them gone a year later. In Australia, the Bendigo Bank seems to be the only one which keeps its branch managers in place for the long term.

There is clearly a place for payday loaners and check cashers. In all cases that I know of, they are privately owned. I think it would be an improvement if they were each owned by a collective controlled by people drawn from the community they serve. That would help to take away the stigma for people using these services and profits could be used to alleviate the poverty that causes people to be ‘unbanked’. Perhaps the Bendigo Bank can look into this?

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