The FDIC estimates that 10 million U.S. adults are completely cut off from the banking system. Millions more, often referred to as the "underbanked," have a very limited relationship. Their ranks are growing as many more people become "formerly banked."
The FDIC reports:
Access to the banking system is important. It empowers people to develop assets. In today's economy, a consumer needs to have developed a financial identity in order to qualify for credit. In some instances, a lack of a credit profile can even prevent someone from getting a job.
Products for the underbanked and unbanked include:
- check cashing
- refund anticipation loans and refund anticipation checks
- prepaid debit cards
- Buy Here Pay Here automobile loans
- payday loans, as well as other higher-cost installment loans
- auto title loans
- certain credit insurance products tied to consumer installment loans
Most of these can come with some harmful features. Payday loans, for example, bear interest rates of as high as 600 percent. A number of these loan products tap the ACH system and there have been cases where payment processers were illegally debit those accounts. Most cost more than services aimed at prime consumers.