When you do not have access to a bank account or a traditional financial institution, you have to turn to the likes of check cashing facilities, prepaid cards and payday loans. All of these cost a great deal of money, and can reduce the amount of funds you earn every single month because of costly fees.
A new study has found unbanked Hispanics are the most affected by this trend.
Using data from the Federal Deposit Insurance Corporation (FDIC), NerdWallet discovered that Hispanic households without bank accounts can pay hundreds or perhaps even thousands of dollars in fees every single year, which impacts the most vulnerable that are already having a hard time getting by today.
It is estimated that 16 percent of Hispanic households don’t have bank accounts. When they decide to use prepaid cards, they can fork over $489 a year. This skyrockets when the fees from payday loans and money orders are added into the mix. The former can range between $10 and $30 for each $100 borrowed in addition to the exuberant interest rates. The latter can eat up 10 percent of the check.
This a lot higher than the $15 a month you’d pay the financial institution for a checking account, and the $34 you’d pay for an overdraft. Simply put: unbanked Hispanics are needlessly wasting money.
“They are discouraged very soon when they start to pay fees or struggle to maintain a minimum balance,” Antonio Alba Meraz, an educator with the Latino Financial Literacy Program at the University of Minnesota told the Palm Beach Post.
Ultimately, the report concluded, Hispanic consumers can enter into high-interest debt traps. Moreover, they can miss out on opportunities to establish credit, which can help them get banking products.
Reportedly, Spanish-speaking households are five times more likely to not have a bank account. Some of the reasons include high fees, identification problems, credit history issues and distrust of banks. Other common issues consist of low income, education, language barriers and legal status – we all know legal status has suddenly become quite the big deal in the United States today.
But if Hispanics want to avoid wasting their hard earned money on fees then it’s time to turn to banks.
Alternative financial products have been given a poor reputation as of late. This is especially true for payday loans, which is a $40 billion industry. Critics often accuse payday loan businesses like Landmark Cash of taking advantage of the impecunious, particularly minorities. They allege that payday loan lenders charge exorbitant fees, which send a lot of the customers into endless debt cycles.
Proponents counter this argument by referring to the fact that a lot of those who utilize payday loan companies do not have access to conventional forms of credit and bank accounts. Oftentimes, a payday loan, no matter the cost, can help a Hispanic households keep the lights on, pay the rent or repair a broken down vehicle.
Whatever the case, now is the time for unbanked Hispanics to become banked.