On January 23, Penn IUR and PennDesign co-hosted a book talk to launch the publication of The Unbanking of America: How the New Middle Class Survives by PennDesign’s newest faculty member and Penn IUR Faculty Fellow, Lisa Servon, Professor of City and Regional Planning, Chair, Department of City and Regional Planning, PennDesign. Penn IUR Faculty Fellow John Landis, Professor of City and Regional Planning, introduced Servon and welcomed a diverse group of faculty, students, and general public attendees. Combining firsthand stories with macro-level policy explanations, Servon described the recent trend of unbanking in the US and proposed a shift in how we think about consumer financial health.
Framing the discussion, Servon cited a 2015 survey conducted by the FDIC, which found that 7% of US households do not have a bank account (unbanked) and another 20% use alternative financial products and services (underbanked). These alternatives, such as payday lenders and check-cashing businesses are widely considered predatory institutions taking advantage of low- and middle-income communities. Why then were so many Americans turning to these services? she questioned. Servon went beyond literature reviews and surveys to answer this question, ultimately conducting fieldwork as a teller at RiteCheck, a check-cashing business in the South Bronx and as a payday lender at Check Center in Oakland, California.
Citing stories from her up close and personal experiences, Servon argued there were three main reasons consumers were choosing alternative financial services over banks. Transparency of the offers and fees at these institutions was higher at alternative institutions compared to the hidden fees often seen at banks. Transaction costs, both in dollars and time, were lower compared to banks where the delay in receiving cash or high overdraft fees might unduly burden customers. Finally, customer service and assistance were much more personal at alternative institutions than traditional banks.
Servon reflected on how the customer service at the check casher and payday lender reminded her of experiences as a child going to the local Savings and Loan where all the tellers knew her and her family by name. While this small-scale, personal banking approach arose as a result of the post-Depression Glass Stegall Act requiring a separation of retail and investment banking, deregulation in the 1980s gave way to a new banking business model in which the individual was much less important. Further, banks began adding fees to products or overdrafts, leading many lower and middle-income customers to opt out of a traditional banking.
Currently, the country is in a state of chronic financial instability as a result of incomes become increasingly unpredictable, public and private safety nets retracted, and, until very recently, wages declining. In order to make financial health attainable and sustainable for all Americans, we need a series of reforms in both the private and public sector – such as alternative credit scoring, “nutrition fact” boxes on financial products, and the continuation of the Consumer Financial Protection Bureau. Finally, recognizing that bank accounts are not the only avenue to financial stability, she called for a shift away from terms such as unbanked to a conversation instead about overall financial health.
The event wrapped up with a number of questions from the audience on the value of high customer service and personal relationships, credit unions and other alternatives to the four largest banks, and the current role of the Community Reinvestment Act. Copies of The Unbanking of America: How the New Middle Class Survives are available for sale now.