Arizonans without bank accounts surge by 50 percent
The Phoenix Business Journal
By: Christopher Leone
November 16, 2012
Juan Delarosa hasn't had a checking or savings account in more than a decade. He is what the Federal Deposit Insurance Corp. calls "unbanked."
Delarosa says, however, he has no problem paying his bills on time. His retirement income is deposited directly onto a debit card that is not linked to a checking or savings account. He uses it to pay rent, buy food and even invest.
"I only make about $23,000 a year in retirement income," Delarosa said, admitting if he made more money he would probably need to a get a traditional bank account. "But I don't need it."
Delarosa is one of a growing number of unbanked households in Arizona. From 2009 to 2011, the percentage of unbanked households in the state grew from 7.6 percent to 11.6 percent, or about 300,000 unbanked households, according to the FDIC's national survey of unbanked and underbanked households released in September. That is a much bigger increase than the national average, which rose from 7.6 percent to 8.2 percent over the same period.
The FDIC defines a household without a checking or savings account as unbanked. Households with a checking or savings account that also use alternative financial services such as payday loans are considered underbanked. Fully banked households have a checking or savings account and don't use alternative financial services.
The 52 percent increase in Arizona's unbanked households was the largest in the U.S. During the two-year period, most states saw an increase in unbanked households, while 18 states registered a decrease. Arizona's ranking for households without a checking or savings account rose from No. 16 in 2009 to No. 4 in 2011 among states in terms of the percentage of unbanked households.
The FDIC's numbers point to economic difficulties suffered by lower income communities and the need for programs that help unbanked households regain "access to basic, safe, and affordable bank services," according to the FDIC.
More to the story
But the FDIC numbers don't tell the whole story. There are individuals in Arizona such as Delarosa with a steady income that do not want a traditional savings or checking account. And in response to employees who remain unwilling to set up a bank account for direct deposit of their paycheck, employers have offered them pre-loaded debit cards, said Anand Bhattacharya, an Arizona State University W.P. Carey School of Business professor.
These cards are not attached to a bank account and can be regularly loaded with the employee's earnings, avoiding the need for the employer to issue a paper check.
Bhattacharya is not surprised fewer people are using banking services. Individuals who do not use banks on a regular basis may find maintaining a traditional savings or checking account both costly and inconvenient, he said.
"You might want to get an auto loan once in five years ... other than that, what exactly do you need to go to the bank for?" he asked.
From the bank's perspective, someone who begins each month with his paycheck and ends with a zero balance might be costing the bank more money than it can make off the account, Bhattacharya said.
Larger banks with more resources and better economies of scale are reaching out to the unbanked households in their communities.
All banks, however, have the responsibility to live up to the intent of the Community Reinvestment Act, a Federal regulation requiring banking institutions to provide services to all households, unbanked or not, in the communities that they service, said Phoenix banking industry veteran Ernest Garfield.
Wells Fargo is an example of one large institution actively looking for ways to reach the unbanked in Arizona, said Victor Aranda, Wells Fargo regional bank area manager.
Wells Fargo offers several distinct programs that provide the unbanked with the same kinds of services that they are getting from alternative financial services firms. Aranda said he believes Wells Fargo can save money for the unbanked over the long run, but education is the key.
"We focus on educating the under-served consumers about bank products, finding ways to help them integrate our services into what they do every day."
Integrating the unbanked is easier said than done. The Arizona State Retirement System charged head-on into that issue a few years ago when it tried to get all of its 112,000 retirees set up with a checking or savings account so it could replace paper checks with direct deposits. After getting most to go along with the change, 1,180 still were without a checking or savings account, said David Cannella, communications manager for ASRS.
The solution became the "ASRS benefit card," a debit card the system uses to transfer retirees' monthly payments. It is not linked to a checking or savings account.
ASRS negotiated a relationship with Bank of America to issue the cards with no set-up fees or transaction fees.
"It was a win-win for everyone," he said.
It gave ASRS retirees more security than a paper check, lower fees and saved ASRS more than $95,000 per year in check-related costs.
Those 1,180 retirees, however, still are considered unbanked, according to the FDIC spokesman David Barr.
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