Alabama has high 'unbanked' population
Birmingham Business Journal
By: Antrenise Cole
November 2, 2012
About 193,000 Alabama households didn't have a checking or savings account in 2011, according to recently released data from the Federal Deposit Insurance Corp.
That means 10.2 percent of the state's 1.9 million households were among the so-called unbanked population last year, giving the state the 11th highest percentage of unbanked households in the U.S., FDIC's National Survey of Unbanked and Underbanked Households shows.
Another 544,000, or 28.8 percent, of Alabama households are underbanked - those who rely on alternative services, such as non-bank money orders, check cashing services, payday loans, rent-to-own services, pawn shops or refund anticipation loans, even though they have bank accounts - according to the survey.
Experts say those numbers present some opportunities - and challenges - for Alabama banks, although several social issues facing Alabama families will make it difficult to bring many low- and moderate-income households into the banking system, creating a need for financial literacy education programs.
Stephen Yoder, assistant professor at the University of Alabama at Birmingham's School of Business, said the unbanked likely avoid the banking system because they do not understand it and therefore are afraid of it. That's not a new phenomenon, he said, noting that Congress passed the Community Reinvestment Act in 1977 to encourage banks to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods.
Before the act, he said Congress concluded that banks were not doing enough to meet the banking and other financial needs of low-to-moderate income people. "It is clear that if banks educated low-to-moderate income people about the banking system, this would count as a community development service for which they would receive credit under the CRA," he said.
If the results of the survey are correct, he said there is still work to do in meeting the banking needs of a relatively large portion of the state's population, even 35 years after the Community Reinvestment Act was adopted to address the issue. He said perhaps what will turn things around is the profit motive: banks will be motivated to actually meet the banking needs of low-to-moderate people if it is profitable to do so.
"If they can find products that do that, without undue regulation from the new Consumer Financial Protection Bureau, that would be a win-win for everyone," he said.
Yoder pointed to products like Regions Bank's Now Banking and Wells Fargo Bank's Hands On Banking as examples of banks trying to meet that need. And other banks with a presence in the local market, such as BBVA Compass, PNC and BB&T, offer online financial literacy programs.
The highest unbanked and underbanked rates nationwide are found among non-Asian minorities, lower-income households, younger households and unemployed households, the FDIC said.
John Norris, an economist and managing director at Oakworth Capital Bank, said he thinks the decision to use banking services appears to be more societal than anything specific the banking industry has done.
"If we can address some of the societal ills facing Alabama, namely a relatively low level of educational attainment and high levels of single parent households, we can better address unbanked and underbanked households in the state," he said.
Norris said states with high poverty rates will be less likely to use banking services. He said people in the lower income levels will be less apt to use a bank because they can't afford account-level fees.
Norris said even though the financial crisis and mergers and acquisitions have led to fewer bank branches in Alabama, there are still plenty of them throughout the state for those who want to open an account.
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