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Union Home Mortgage Review – Banking the Unbanked: Exploring Private and Public Efforts to Expand Access to… (EventID=113948)


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On Wednesday, July 21, 2021, at 10:00 a.m. (ET) Consumer Protection and Financial Institutions Subcommittee Chairman Perlmutter and Ranking Member Luetkemeyer will host a hybrid hearing entitled, “Banking the Unbanked: Exploring Private and Public Efforts to Expand Access to the Financial System.”

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Witnesses for this one-panel hearing will be:

• Mehrsa Baradaran, Professor of Law, University of California-Irvine

• Deyanira Del Río, Co-Director, New Economy Project

• Ameya Pawar, Senior Fellow, Economic Security Project

• David Rothstein, Senior Principal, Cities for Financial Empowerment Fund

• John Berlau, Senior Fellow, Competitive Enterprise Institute

Overview and Purpose

As of 2019, more than one in five Americans was unbanked or underbanked. Additionally, lowerincome households and people of color were disproportionally likely to lack access to traditional banking services. Unbanked and underbanked consumers often rely on alternative non-bank financial products such as check cashing, money orders, bill payment, or other services, which typically come with higher costs and may not be as reliable as traditional banking services. Without banking services, many consumers may experience barriers to securing their savings, accessing the payments system, establishing credit, or even receiving government benefits. This hearing will examine trends in unbanked and underbanked households, challenges to improve access to mainstream financial services, and current initiatives and proposals to better expand the availability of safe and affordable banking and financial services for all people and in every community.


According to a 2019 survey from the Federal Deposit Insurance Corporation (FDIC), 5.4% of households in the U.S. were unbanked, meaning that no one in the household had a checking or savings account at a bank or credit union. Similarly, the Board of Governors of the Federal Reserve System (Federal Reserve) found that 6% of adults in the U.S. were unbanked, in addition to 16% of adults who are underbanked, meaning they had a bank account but also used alternative financial services from nonbank sources such as money orders, check cashing, payday loans, or other forms of small-dollar credit. Differences in banking access also varied by race, ethnicity, income, and education level. For example, Latinx and African-American households were more than two and three times as likely (respectively) to be unbanked or underbanked compared to White households. Also, 35% of households with an annual income of less than $40,0000 were underbanked or had no bank account at all, and households with less education were also more likely to lack access to banking services.

Trends among Unbanked Households

Consumers report several reasons for not using or having access to a bank account. According to a 2019 FDIC survey of U.S. households, the top reason reported by households for not having a bank account was because they did not have enough money to meet a bank account’s minimum balance requirements. Survey respondents also named a lack of trust in banks, privacy concerns, and fees as among the other reasons they did not have an account. In some cases, consumers reported a preference for alternative financial services to traditional bank accounts for reasons of convenience and because fees may be more transparent at non-bank firms when compared to banks’ minimum account, ATM, or other fees.

While the rate of unbanked American households fell in the period from 2011 to 2019, the FDIC expressed concern in the 2020 release of its report, “How America Banks,” that the impact of the COVID19 pandemic may reverse this trend. In its report, the FDIC noted the unprecedented rise in unemployment in 2020, and that “one in three households (34.1%) that became unbanked in the past months experienced either a significant income loss or a job loss that contributed to their becoming unbanked.” The pandemic also highlighted the importance of having bank accounts during a national emergency. Americans with bank accounts linked to the Internal Revenue Service (IRS) were the first to receive Economic Impact Payments, while those without accounts had to wait for checks or prepaid debit cards to be mailed to them, experiencing longer wait times and in many cases, lost or discarded payments. Additionally, the pandemic may change the way people interact with financial institutions. In an FDIC survey, 83% of respondents who were currently banked reported having visited a bank branch in person, however, social distancing requirements during the pandemic…

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