Banking services in America are omnipresent. Most Americans possess checking and savings accounts, use credit cards, and finance major purchases with loans. However, for a surprisingly large share of Americans, the barriers to opening and maintaining bank accounts are too high, making it difficult to function in an increasingly cashless society. Unsurprisingly, these households tend to have low incomes and few financial assets.
The lack of access to financial services doesn’t mean they are not needed. A variety of services help fill in these gaps. The public— and policymakers—should be aware of the vital role these services play. While it’s tempting to criticize those specializing in serving this population, and to view the fees charged and practices employed as exploitative, these services fill a critical need and must take into account the higher risks and costs of providing these services.
This paper explores how some of the most heavily criticized financial services practices—payday lending, repossession services, and banks levying transaction fees—actually make it possible for vulnerable communities to participate more fully in the modern economy. without them people would be forced to turn to the black market and be even less likely to have access to banking and loan products.
Policymakers should consider policy reforms to encourage continued innovation in the financial sector and recognize that consumers are best positioned to decide which services meet their needs at any given time, because—despite regulators’ best intentions—interventions often restrict consumer choice, ultimately resulting in fewer options and higher costs.