Black families in Louisiana are ‘underbanked’

By Mason Harrison
Contributing Writer

Families in Louisiana are more likely than households in other states to lack regular access to financial institutions, a report receiving national attention from the Federal Deposit Insurance Corporation suggests. Among the almost 40 percent of households in Louisiana that fall short of being “fully banked,” Black residents—along with their Hispanic counterparts—are estimated to comprise the bulk of the figures. The FDIC report culls 2013 census data pinpointing access to banking institutions in America. Louisiana, according to the report, ranks second in the nation for residents who lack banking services.

But an effort sponsored by credit card giant MasterCard aims to drop the number of so-called “unbanked” and “underbanked” families nationwide. The Master Your Card program is billed as who forgo banking options altogether or those with savings or checking accounts, but who opt to use other financial services such as payday loans or check cashing services. More than 13,000 payday lenders dot the United States, according to Financial Service Centers of America, an industry trade group. Those locations account for upwards of $100 billion in annual transactions.

Following the U.S. financial crisis, a number of large banks withdrew from urban and rural areas largely populated by poor Black and brown residents leaving a vacuum increasingly filled by payday lenders. Such loan services are “strategically located in low-income neighborhoods,” according to data from the Center for Responsible Lending. “[P]ayday loan stores reap millions in profits from a product designed to force borrowers into repeat loans. With each loan renewal or flip, borrowers become unable to both repay the lender and have enough money left until the next payday arrives.” The center blasts the loan industry as a “trap of recycled debt” that leads to “billions…taken each year from the poor.”

But in Louisiana progress is being made to reduce the number of residents dependent on lending services. In 2011, the number of Louisianans without bank accounts totaled 38.7 percent. Yet by 2013, that number fell slightly to 38.4 percent of residents across the state. “Although this number is moving in the right direction,” says Marjorie Rochon, who leads public relations for Master Your Card, “there is clearly still more education that needs to be brought to the community to help this decline continue.”

Master Your Card has helped thousands of consumers in its three-year history to better understand the impact of not having reliable access to traditional financial services through banks or credit unions. “What we observe is that in certain communities cash is king,” says Mercedes Garcia, vice president for global community relations for Master Your Card. Garcia also heads a Latino advisory committee for the program to reach consumers who may be less proficient in English. “We’ve noticed there can be a mistrust of banking institutions and this is not helped by a lack of fully understanding English.”

She attributes the drop in residents without sufficient banking services in Louisiana to public education. “Obviously we are having an impact,” Garcia says. “Various private and public programs are reducing the numbers,” a factor that rubs up against figures from other states where the ranks of the unbanked are on the rise. “I’m not sure what specifically makes Louisiana different, but the signs point to success.” She asserts the Master Your Card program also holds businesses accountable who issue payroll cards. “If a business is using a payroll card with the MasterCard logo, we want them to ensure that employees are not paying transaction fees; are subject to zero liability for card errors; to provide alternatives to employees who prefer other forms of compensation; and to be transparent with their workers.”

Still problems persist nationwide. In 2002, complaints about lending practices by banks in urban areas through the Community Reinvestment Act began to make their way to FDIC regulators in Washington, D.C. The act, first passed in the 1970s, gives incentives to traditional lending institutions to provide financial services to residents living in underserved communities. But charges persist that large lenders engage in unfair practices by restricting the number of loans delivered to underserved consumers.

These practices only underscore the challenges of Black consumers in securing financial services. Almost half of all “recently unbanked” households in the United States are Black. Black families account for more than 20 percent of households that are less likely to use online banking services, a factor attributed to the so-called digital divide in which Blacks are more likely to lack regular, reliable access to the Internet. More than 30 percent of Black consumers are more likely to access cash through ATMs or kiosks, contributing to an increase in the number of transaction fees charged to debit, check and pre-paid cards.

Many of the country’s unbanked consumers allow bank accounts to languish after failing to maintain minimum balances. “We see that a sudden loss of income can contribute to no longer having a bank account,” Garcia says. Conversely, new-hires at jobs with direct deposit are more likely to open bank accounts. But unemployment figures that disproportionately affect Black Americans stall growth in participating in traditional banking services. Nationally, the unemployment rate in the United States fell in October to 5.8 percent, among whites the number decreased to 4.8 percent. Among Blacks the rate stands at 10.9 percent. In Louisiana, the overall unemployment rate for the month of October totals six percent.

This article originally published in the November 17, 2014 print edition of The Louisiana Weekly newspaper.