The St. Louis region has one of the largest populations of people not using mainstream banking services of any major city in the United States. This population, also known as “unbanked,” either does not have knowledge of available financial resources or does not have access to them.
A 2013 survey of households by the Federal Deposit Insurance Corporation (FDIC) finds that 4 percent of households in the St. Louis metropolitan area is unbanked. Additionally, more than 19 percent of St. Louisans are underbanked, possessing some, but not all, financial resources. The underbanked often lack access to stable loans and lines of credit, which are critical for making big purchases and providing security in times of financial uncertainty.
African Americans make up the vast majority of the unbanked population in St. Louis. Thirteen percent of African-American households are unbanked, as opposed to a much smaller proportion of white households. These numbers have decreased since the last FDIC survey in 2011. However, many of our neighbors are still lacking access to the resources they need for financial stability.
Missouri should be a hub for economic growth and social mobility. We need to ensure this by encouraging all consumers to participate in our financial system.
The situation in Kansas City is even more bleak. The same FDIC survey shows that 12.9 percent of residents in the Kansas City metropolitan area are unbanked, and that an additional 19.4 percent of residents are underbanked. Analysis from the Kansas City Star shows that 45 percent of the city’s African-American households were unbanked.
We need to encourage all Missourians to pursue stable financial resources, and to utilize the mainstream institutions for their personal finances. According to a report from the St. Louis Federal Reserve, checking and savings accounts are an important first step to applying for a line of credit for example, loans for a home or a car. These resources allow people to make big purchases and pursue their financial dreams without unnecessary risk.
Without bank accounts, consumers must turn to alternative financial services, which can be costly. Unbanked people spend anywhere from 2.5 percent to 5 percent of their checks just to cash them. They also regularly purchase money orders to pay for routine expenses, like monthly bills. A household making $20,000 could spend as much as $1,200 on alternative financial services, whereas a checking account costs significantly less.
The unbanked and underbanked rely on alternative financial services. FDIC estimates show that 12 percent of Missouri households regularly use these services nonbank check cashing services, payday lenders, and pawn shops, for example and that 25 percent of Missourians used them in the last 12 months.
Alternative lenders are particularly rampant in Missouri. A 2014 report from the Missouri Division of Finance shows that 838 payday lenders are registered in the state, issuing 1.87 million loans. There are 980 companies registered as installment lenders, offering loans over longer periods of time but still charging massive interest. Some institutions offer both types of loans, in addition to title loans and check cashing.
Payday loans, installment loans, title loans, and other lending scams overwhelmingly target those with low incomes, people of color, and senior citizens; most of these Missourians are unbanked or underbanked.
If people can’t pay back their initial loan, the industry will offer more loans to pay back the initial one, and more time to repay it. Individuals often take out multiple loans from these institutions just to pay back earlier ones. The problem is that they charge extreme interest rates some as high as 400 percent, ensuring that those who take out a loan keep slipping further into debt and can rarely escape it.
We need to recognize the danger that predatory lenders pose to the financial wellbeing of Missouri and put them out of business.
Financial stability requires access to financial resources: banks insured by the Federal Deposit Insurance Corporation (FDIC) that offer checking accounts, savings accounts, stable lines of credit, and affordable loans. Without these resources, people are forced to turn to high cost alternatives such as predatory lenders if they can’t make ends meet.
The unbanked and underbanked lack access to financial resources that are the groundwork for future savings and financial stability. There either aren’t enough adequate financial institutions creating “financial deserts” or people simply don’t know about the resources available to them.
I have firsthand experience working to extend mainstream banking options to unbanked and underbanked Missourians. I began my career at the Kansas City Federal Reserve, working to grow community banking and combat financial deserts. I will take that knowledge to Jefferson City to fight for stable financial resources for all Missourians.
I believe that all Missourians deserve to pursue stable financial growth, and that Missouri’s unbanked population does not have equal opportunity to pursue that growth. The unbanked need access to mainstream institutions where they can keep their hard-earned money more safely. The underbanked need additional financial services, especially affordable lines of credit, to ensure they don’t rely on predatory lenders.
We need to make sure Missourians have access to more stable financial options. As Missouri treasurer, I will work with community banks to clear up financial deserts and introduce the unbanked into the stable banking community. I will work to increase access to affordable loans and lines of credit in times of crisis or emergency and provide financial education so the unbanked and underbanked have the knowledge to accomplish their goals.
We need to clear up financial deserts and extend stable banking options to every Missourian. If Missouri is to be a place where everyone has the opportunity to pursue economic growth, then we must prioritize financial stability for all.
Pat Contreras (D-Kansas City) is running for state treasurer in the August 2 primary.
