With more Americans living paycheck to paycheck, Professor Lisa Servon decided to understand why people are reducing their reliance on traditional banks. Her new book, The Unbanking of America, shares how every day individuals, from business owners to students to immigrants, are moving to creative banking alternatives. In examining a unique view of money management, the author highlights ideas that serve the lower and middle class with imagination and thinking outside the box.
What is turning American consumers away from banking to alternative options?
Diving into Research
The author, Lisa Servon, is a professor of city planning at the University of Pennsylvania. She writes about financial services regularly for the Wall Street Journal, the Atlantic and the New Yorker online, according to her Amazon.com profile. One of the reasons she found this topic so fascinating was in reviewing the FDIC's National Household Survey of Unbanked and Underbanked Households, it was noted that up to 8 percent of Americans don't have a bank account at all.
After growing up with a community bank, she states in an interview with NPR, she noted the familiar aspects of bank tellers who knew her father because he went there every week. Of course, many community banks have been absorbed by larger banks and consumers rarely have to interact with bank tellers who know them by name anymore.
To dive deeper into her research for the book, she went undercover. She worked for a check cashing service and a payday advance lender to understand why people were using services that seemed to charge exorbitant interest or fees. She talked one-on-one with individuals, noted that these services were not only being used by lower class, but homeowners and entrepreneurs as well, and uncovered other alternatives that she didn't expect. Here were the reasons she found for moving away from traditional banking.
Relationships & Customer Service
As stated previously, more consumers do their banking via ATM machines, their mobile devices or internet browsers. Those relationships with the bank tellers who handed out lollipops seem like a blur from a long ago past. As Servon worked undercover for a check cashing service in Harlem, NY, she found that the same customers came regularly to use the service. In some cases, they even attempted to tip her. The customers, although low income, so appreciated customer service and working with a real life person, that they felt compelled to give something back.
Fees & Transparency
Servon noted that in 2011, Americans were held responsible for over $38 billion in overdraft fees alone. Many lower and middle class consumers feel that banks are charging unnecessary penalties and hidden fees in order to gain huge profits. When the author worked at a payday advance service in Oakland, CA, she found that although the interest rates were extremely high, those that used the service were in dire need for immediate cash and were thankful the option was there. These banking alternatives were attractive, even with higher fees, was because consumers knew what to expect. They could actually build budgets around the fees they knew they would be charged and could prevent overcharge bank fees by having the money in hand immediately. Many felt a sense of control over their money because they could get the money, separate it to pay bills, vendors and employees, and understand, in hard dollars, what would be left to feed their families.
Deregulation and Consumer Protection
With different and often disparate agencies regulating the banking industry, especially after bank deregulation in the late 70's and 80's, banks have only grown larger and further away from the customer and the small town community customer service. Unfortunately, consumers have seen some banking institutions attempt to boost even higher profits, as with the recent Wells Fargo scandal. The Consumer Financial Protection Bureau (CFPB) has also been established to collect consumer complaints with regards to financial services and and attempt to stay on top of banks' growing disregard for public interest.
Lisa Servon advocates that the government also push for banks to be transparent in their fees and how they do business. With large contracts and agreements that most people don't read, there is a lack of trust for banks from the average consumer. She believes that banks are moving further away from the interests and needs of American consumers and she hopes her book will highlight this growing trend.