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Would you pay $22 a month just to cash your paycheck?
That's what some check-cashing services charge to process a $500 check. Such
high-cost services are the alternative to banks for 10 million U.S. families
who don't have checking accounts, much less savings or retirement accounts.
"Unbanked" families -- those who don't enter the mainstream banking system --
can end up paying as much as $500 a year for check-cashing and money orders
just to pay bills, said Michael Stegman, chair of Carolina's public policy
program.
And they find it impossible to get a loan for a car, home, or education or even
a credit card. For that reason, Stegman is working to educate more people about
the financial system and encourage them to take advantage of it.
There are a variety of reasons why people may not open bank accounts, Stegman
said. For example, some immigrants may come from countries where banks were
unstable and not to be trusted. Through the Frank Hawkins Kenan Institute of
Private Enterprise's Center for Community Capitalism, which he directs, Stegman
and his staff do interviews and other research to learn why low-income people
don't have bank accounts, what kinds of accounts would be attractive to them
and what they would be willing to pay for them.
"All federally insured banks are by law obligated to provide services that meet
the needs of the communities they serve, including low-income communities," he
said.
Some little-known laws may make that easier. Legislation passed in 1996
mandates electronic transfer of federal benefit checks such as Social Security,
food stamps and Supplemental Security Income. Electronic benefit transfer (EBT)
was originally passed to save the government money, Stegman said.
It costs 43 cents to process and distribute a benefit check by mail, as opposed
to 2 cents to do that electronically. A byproduct of this legislation is that
the government is trying to bring more benefit recipients into the banking
system.
Stegman advocates that banks take EBT a step further by combining it with
special savings accounts that would provide low-income people with matching
funds for their savings. He helped draft the proposed Savings for Working
Families Act of 2000, introduced in February by Sen. Joseph Lieberman
(D-Conn.), which would give federal tax credits to banks that offered such
savings accounts. Stegman's recommendations are outlined in his book, Savings
for the Poor: The Hidden Benefits of Electronic Banking.
Stegman also testified on June 27 on the proposed First Accounts Act of 2000,
sponsored by Sen. John J. LaFalce (D-N.Y.). It would provide $30 million to the
U.S. Treasury Department to form partnerships with banks, community
organizations and others that encourage financial institutions to create
banking products for working poor people.
Bringing low- and moderate-income people into the financial system can have
benefits for banks too, Stegman said. "I think this is a market with upward
potential."
Provided by Graduate Studies and Research
Writer: Angela Spivey
Editor: Neil Caudle
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