A new report outlines the challenges and solutions to building a better financial life.
By John Marth, UnidosUS Content Manager
Checking your debit balance, opening a credit card, or taking out a loan shouldn’t be a struggle. Ideally, financial services and tools should be equally accessible to everyone, making it possible for anyone to make the economy work for them. But for too many Americans, that’s just not the reality.
There are nearly 100 million Americans living in poverty, or nearly in poverty. And without fair access to financial services, they lack the opportunities for upward mobility and a healthy financial life that others take for granted. Communities of color, including Latinos, are hardest hit, and face additional barriers to accessing these services.
“Barriers to financial inclusion prevent people from fully participating in the American economy, and the data shows that minority communities struggle to access traditional banking products and services,” says Marisabel Torres, Senior Policy Analyst at UnidosUS.
Torres presents those barriers in a new UnidosUS report, The Future of Banking: Overcoming Barriers to Financial Inclusion for Communities of Color. She researched and wrote the report with PolicyLink Director Christopher Brown and Rebecca Loya, an independent research consultant. The report was released earlier this week at an event in Florida.
The report investigates barriers low- and moderate-income (LMI) consumers of color face in engaging with the financial system. “In our report, we look at the experiences of people of color as they seek out financial services, and we connect the dots and make recommendations across the whole financial system—from traditional banking, financial technology, regulations, and policy,” Torres says.
There’s existing research outlining the challenges LMI consumers face, but as Torres explains, consumers of color are often left out: “Other groups look at banking trends, but since we have our Affiliates who are grounded in local communities, we can capture the perspectives that are left out of conversations, because the Hispanic community is hard to get ahold of in national surveys.” In addition to Latino consumers, The Future of Banking includes perspectives from Black and Asian American and Pacific Islander consumers.
UnidosUS and PolicyLink base the report’s findings on interviews with leading stakeholders and experts in the financial sector, and on focus groups with LMI communities of color in San Diego, Los Angeles, Chicago and Philadelphia. The report is a follow-up to Banking in Color, a 2014 report that surveyed more than 5,000 LMI consumers about their relationship with the financial mainstream.
Nearly half of Latino (43%) and Black (47%) households are unbanked or underbanked, meaning they have either limited or no relationship with the financial mainstream, like banks and credit cards. More people need access to loans, credit, and banking that’s more affordable, but the report shows that LMI consumers, especially people of color, face barriers to entry like ID requirements, balance minimums, language barriers, poor or no credit histories, and fewer bank branches in LMI communities.
Instead, they often have to rely on alternative financial services that aren’t regulated as much and have much higher interest rates. These services, the most notorious being payday loans, have left countless families and consumers in a never-ending cycle of debt that leaves them completely ruined financially. Under these circumstances, it’s nearly impossible to save any money at all.
The Consumer Financial Protection Bureau, or CFPB, was established to inform consumers about their rights, and to regulate financial services, products, and practices that could be potentially dangerous to consumers. The CFPB had issued rules to rein in payday lenders and other predatory practices, but recent federal action has drastically weakened the Bureau’s power to protect more vulnerable consumers.
More recently, financial technology, or fintech, has emerged as a possible entry point for LMI consumers into the mainstream. Innovations like mobile banking have literally put the financial mainstream in consumers’ hands. But it’s not without its challenges.
Concerns around security and data protection make many consumers leery of using mobile banking. And because fintech is so new, it’s not as regulated as other financial systems, so there’s potential for the same predatory practices that we want to protect LMI consumers from.
“Our findings help illuminate the path forward for banks, fintechs, regulators and others to collectively begin a race to the top—toward financial inclusion for all—by adequately serving the financial needs of the 63 million people who have been shoved to the sidelines of our economy,” says Chris Brown, Director, PolicyLink. “If we can leverage innovations to construct the proper regulatory frameworks and incentivize inclusive financial models, everyone can win. But we have to do it intentionally, safely and equitably.”
— Prosperity Now (@prosperitynow) June 4, 2019
To bring more LMI consumers into the financial mainstream, the report lists problems and suggests recommendations for them, including:
- A nationwide network of “navigators” to help the underbanked and unbanked better understand the financial system.
- More accessible financial institutions to meet LMI consumers’ needs, and making sure the institutions are held accountable for serving the LMI well.
- A more inclusive credit rating system that works for everybody.
- A reformed and more transparent checking account reporting system.
- More available credit for low- and moderate-income consumers.
- Restoring power to the CFPB and further innovating fintechs to bring more consumers into the mainstream.
The report takes its findings directly from the people who struggle to access the financial mainstream, as well as bankers, regulators, policymakers, and others, to get a holistic view of the challenges LMI consumers of color are facing.
In the report, we write that “it is our hope that this holistic view can help paint a picture of what a future banking system can entail that helps the 63 million who are currently un- or underbanked advance up the financial and economic ladder.”
Financial services are a major part of the nation’s economy, so it’s essential that all Americans, especially LMI consumers and minorities, have fair access to it. And as fintech, financial services, and policy and regulations evolve, we have to make sure that everybody is included in that evolution.