With the national economy improving at a sluggish rate and more consumers returning to pre-recession norms, you wouldn’t believe that Americans would be in dire straits at this point in the recovery.
Well, you would be wrong, at least according to a new government report.
According to the Federal Deposit Insurance Corporation (FDIC), more New Mexican households are underbanked, unbanked and using alternative financial services like payday loans, checking cashing and money orders. And this data is troubling many officials who view this to be a concerning trend.
The study discovered that the number of underbanked New Mexican households – those that have a checking account but often use alternative financial services – has jumped to 26.9 percent last year, up from 22.5 percent in 2013. Albuquerque did experience a decline from 24.4 percent to 21.6 percent.
Among those who are unbanked – those who do not have a checking or savings account at all – decreased from 10.9 percent in 2013 to 9.4 percent in 2015. Albuquerque also saw a decline: 11.1 percent to 8.6 percent.
Moreover, in New Mexico, the Hispanic population is much more likely to be underbanked or unbanked than other ethnicities. The FDIC survey found that nearly one-third (31.4 percent) of Hispanic households in the state were underbanked, compared to 18.7 percent of white households. The figures are relatively high in Albuquerque: 28.3 percent to 15.1 percent.
Payday loans often come with high fees and interest rates that eat away at customers’ incomes, especially earners that come from impoverished neighborhoods and homes.
Martin Gruenberg, the Chairman of the FDIC, said in a statement that the problem of underbanked and unbanked Americans needs to be addressed because the long-term health of the financial system and national economy is at risk.
By encouraging more Americans to sign up for checking and savings accounts at traditional financial institutions and prevent them from using payday loans and auto title loans, you can help “consumers build assets and create wealth, makes them less susceptible to discriminatory or predatory lending practices, and can provide a financial safety net against unforeseen circumstances.”
Mercedes Garcia, a senior MasterCard executive, told the Albuquerque Journal that she attributes language barriers, a lack of community outreach and zero consumer education as reasons for these numbers.
“Not many banks take the time to translate their program materials into Spanish. It’s the right thing to do, and it’s a huge business opportunity,” said Garcia. “In some communities, the belief is still that cash is king. But our economy is becoming more and more cashless, and not being a part of that can create financial issues that can last generations.”
Payday loans have become a serious issue in the United States as the Consumer Financial Protection Bureau (CFPB) has attempted to crack down on the short-term, high-interest industry.
Critics argue that these alternative financial products send consumers into endless debt cycles. Proponents aver that payday loans are an essential tool for households that do not have access to traditional forms of credit or bank accounts.