Many Minnesotans stay unbanked

Oswaldo Barrera doesn’t have a checking or saving account with any bank. He’s been unbanked for more than ten years and said he likes it that way.

Barrera is a full-time cook at a south Minneapolis restaurant and earns a total of $900 a month. He said there is no need for him to have banking accounts to deposit his earnings.

“I send almost all the money to my family in Mexico,” Barrera said. His wallet can handle the little money that is left with him, he added.

This is one in a three-part series of articles on banks, credit unions, and the "unbanked" in Minnesota:
• Thousands of Minnesotans move money to credit unions
• Corporate banks "very important" for some
• Many Minnesotans stay unbanked

Barrera goes to Los Gallos Express to have his checks cashed, twice a month.

“It’s very convenient,” he said of Los Gallos Express services. “You don’t have to worry about overdrafts, extra fees or your low credit.”

Barrera is among nine million U.S. households without saving or checking accounts, according to a 2009 Federal Deposit Insurance Corporation National Survey of Unbanked and Underbanked Households. In Minnesota, 56,000 households are unbanked — this is 2.6 percent of all households in the state. Another 21 million people nationwide are underbanked, which means they may have banking accounts, but they often use alternative systems.

The majority of unbanked Americans come from minority communities. According to the FDIC study, 21.7 percent of African-American households, 19.3 percent of Hispanic households and 15.6 percent of American Indian or Alaskan Native households are unbanked.

White and Asian ethnic groups, however, are less likely to be unbanked. Only 3.3 percent of white households and 3.5 percent of Asian households nationwide are unbanked, according to the study.

Reasons for being unbanked

People decide not to bank for various reasons, but the most common ones, according to the FDIC study, include service charges, overdraft fees and minimum balance requirements.

Tracy Fischman, executive director of AccountAbility Minnesota, an organization that provides tax and financial services for low-income communities, noted other barriers that prevent people from banking.

“People can be shut out of the mainstream banking systems because they have lower credit or they lack proper identification,” Fischman said.

Some unbanked people don’t think about long-term goals and don’t see the need to open a savings account, Fischman added.

According to the FDIC study, “31 percent of U.S. households that dropped a bank account they had previously maintained cited either service charges, minimum balance requirements or overdraft fees as a reason for leaving the banking system.”

An African-American man, who didn’t want to be identified in this article, had just cashed a $400 check at Express Money Check Cashing located at 108 East Lake in south Minneapolis, when I talked to him. He said he goes there twice a month, and gets charged three percent for every paycheck. That means he pays about $24 a month or $288 a year in fees.

He said he left Wells Fargo seven months ago because of an overdraft fee, which he didn’t want to pay.

“Most of the people I know use these easy check-cashing centers,” he said.

Many low-income people go to big retailers, including Wal-Mart and Best Buy for cashing paychecks.  Wal-Mart stores charge a maximum of $3 for cashing a paycheck up to and including $1,000, and $6 for checks over $1,000 and up to $5,000, according to Wal-Mart’s official website.   

People "think that they’re saving money and paying less in fees” by not using traditional banking, Fischman said, “but they’re actually paying more fees.”

The unbanked individuals, like Barrera, spend more than $40,000 over a lifetime, on an average, just to cash their checks, according to a Wall Street Journal article.  

To save money for the unbanked, Fischman’s organization has helped nearly 3,000 people open savings accounts.

“We’re in a position to talk to people about the future of their finances,” Fischman said. “We contact financial institutions and establish relationships so that they help our clients.”

Ibrahim Hirsi