Underbanking in the United States

by Ibe Alozie

This article discusses underbanking (and its nexus to poverty) in American households, steps that the Bureau of Consumer Financial Protection (CFPB) has taken to mitigate the effects of underbanking, and recent changes at the CFPB that increase the likelihood that the CFPB will be less active in mitigating the effects of underbanking. To learn more about underbanking, check out From Paper to Electronic: Food Stamps, Social Security, and the Changing Functionality of Government Benefits, by Sarah Carrier, available on Westlaw and LexisNexis.

A household is considered “underbanked” when it has an account at an insured institution or bank but still uses alternative financial systems or services outside of the banking system.[1] Rather than going through the traditional banking system, these households use money orders, cash checking, auto title loans, or pawn shop loans, among others, to meet their financial needs.[2]  While 68% of households in the United States are fully banked, a 2015 survey by the Federal Deposit Insurance Company (FDIC) found that 19.9% of households in the United States—approximately 24.5 million households—are underbanked.[3]

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