For 'unbanked' Americans, pandemic stimulus checks arrived slowly and with higher fees. But that could change.

When Renee Whittick opened a checking account last year, the smallest financial tasks became easier.

“Before I had a bank account … I wasn’t even able to order my own Uber or Lyft,’’ says Whittick, 31.

She was encouraged to open an account by coaches with Neighborhood Trust Financial Partners, a New York City-based nonprofit that helps with saving and other aspects of personal finance. Now, she says, she is able “to do something simple like that, or pay for things online.’’

Efforts to get Americans who don't have bank accounts to open them are accelerating amid a pandemic that has exposed the need to be able to quickly access financial assistance and savings.


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A Capital One bank in the Lower East Side of Manhattan on July 30, 2019 in New York City.
A Capital One bank in the Lower East Side of Manhattan on July 30, 2019 in New York City.

Capital One last Wednesday became one of the largest financial institutions to end overdraft and nonsufficient fund fees, removing what consumer experts say is a key barrier to roughly 7 million U.S. households having a checking or savings account.

Capital One's decision followed a similar move by Ally Financial which announced in June that it was ending overdraft fees.

These moves to help the "unbanked" should help nonwhite consumers in particular who are less likely to have bank accounts and other financial lifelines according to research. More broadly, a lack of banking options delayed some households from receiving stimulus payments during the pandemic, and could hinder them from getting other funds, such as federal or state income tax refund checks, officials say.

Now, roughly 48% of U.S. banking branches offer at least one certified account that aims to help the unbanked by cutting out insufficient funds and overdraft fees, requiring no more than $25 as an opening deposit, and limiting maintenance fees to no more than $5 a month. They also enableaccount holders to pay bills, make purchases, and access their cash at ATMs and online.

The accounts, dubbed "Bank On" meet standards set by the Cities for Financial Empowerment Fund, (CFE Fund) a national nonprofit that provides funding and technical assistance to mayors and local leaders to improve residents' financial stability.

“The pandemic has absolutely increased the focus on the challenges to the unbanked,'' says Rob Levy, head of research for the Financial Health Network, a nonprofit authority on consumer financial health. “There's an increasing movement to offer banking products, particularly checking products, that address some of the obstacles lower-income consumers have.''

Stimulus checks delayed

Many Americans without bank accounts experienced delays in receiving the first federal payments intended to help them weather the economic downturn caused by the pandemic last year.

''Receiving the stimulus dollars, receiving unemployment compensation insurance ... all of the different government supports that were out there really (required) a bank account to be fully effective,'' says David Rothstein, senior principal with the CFE Fund.

Some who didn't have a bank account on file with the IRS may have waited four to five months to get their first stimulus checks, according to research by the Financial Health Network and the Brookings Institution.

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And while subsequent rounds of federal assistance were more timely, "there will always be a delay between accessing your funds through a check versus a direct deposit,'' Levy says. When it comes to "putting food on the table for your family, a delay of a month can be traumatic.''

Being unbanked will cost you

Once pandemic relief checks were in hand, the unbanked often took a financial hit when they tried to cash them.

The initial round of $1,200 payments was distributed through the Coronavirus Aid Relief and Economic Security Act at the start of the COVID-19 pandemic in spring 2020. During that period, Americans, many of them lacking bank accounts, spent $66 million on check-cashing fees, according to research by the Financial Health Network and Brookings.

"It’s really expensive to be unbanked,'' says Rothstein. In addition to check-cashing costs, "if you don’t have a bank account and have bills to pay and can't write a check, you’re going to have to buy money orders, or get bus fare or drive down to local utility providers and pay cash. … The people who can least afford to not have a bank account are the vast majority of the ones who don't.''

Not being able to put money in the bank can also have long-term financial consequences.

TD Bank's 2021 Money Matters Survey found that 54% of unbanked Americans said they set aside less than $50 a month, while 26% said they had no way to cover unexpected expenses.

"Whether it's establishing a relationship with a financial institution,'' Rothstein says, "whether it's improving your credit score because you finally have an account, those are all places where having an account matters.''

And while interest rates on most checking and savings accounts are negligible, "having a dedicated place to put money each month or each week makes a huge difference in people's savings,'' he says. "You’re going to have a harder time trying to save any other way.’’

Not enough money and too many fees

Yet, there are many reasons people don't open bank accounts.

Some feel they don't have enough money to do so, that the accounts will be too expensive to maintain, or they may not trust formal financial institutions, consumer experts say.

Fees are also an obstacle.

In the FDIC's 2019 "How America Banks'' survey, 34.2% of unbanked households said high banking fees were one of the reasons they did not have an account, while the TD Bank survey taken this year found 48% of the unbanked said high and hidden fees were their main concern.

Fees are a particular burden to lower-income, Black, and Latino Americans, groups that are also disproportionately represented among the unbanked.

While 2.5% of white households don't have a checking or savings account, 13.8% of Black households and 12.2% of Hispanic households are unbanked, according to the FDIC.

And the Financial Health Network found Black households were 1.9 times more likely, and Latino households 1.4 times more likely than their white counterparts to pay overdraft fees.

Whittick, who is Black, says it was mounting fees that made her close an earlier bank account several years ago.

In addition to numerous overdraft penalties, Whittick says she was required to maintain a balance of $1,500 or she’d be charged $14.

“I just needed a break from banks,’’ says Whittick, who lives in the Brooklyn borough of New York City. But her financial coach convinced her to try again. "Once I had one, I realized I should have done this a while ago.’’

The Consumer Financial Protection Bureau said last Wednesday that it will go after big financial institutions with overdraft policies that are unlawful. It will also scrutinize banks that have higher fees or a larger number of customers overdrawing their accounts.

In prepared remarks, CFBP director Rohit Chopra said the financial industry collected nearly $15.5 billion in overdraft fees in 2019 "and while some new companies have come up with alternative models that shy away from these practices, heavy overdraft fees are still extremely prevalent across retail banking.''

When Capital One announced it would eliminate overdraft and nonsufficient fund fees, the bank's CEO Richard Fairbank noted that Capital One checking accounts don't charge monthly fees or require a minimum balance.

"Eliminating overdraft fees is another step in our effort to bring ingenuity, simplicity and humanity to banking,'' he said in a statement.

Unbanked shrinking in number

In 2019, the number of unbanked Americans reached its lowest level since the FDIC began gathering data a decade earlier, and the number of low-cost checking accounts that are available continues to grow.

Last year, over 2 million Bank On certified accounts were opened, according to the Federal Reserve Bank of St. Louis, up from the 1.9 million opened in 2019. About 165 financial institutions currently offer the CFE Fund approved accounts, and roughly 30 more have certified accounts that will be available in coming weeks and months, Rothstein says.

The American Bankers Association (ABA) says it has focused on increasing the number of financial institutions offering lower-cost, certified options over the past year.

Bringing in the unbanked has been "a long-term proposition,'' says Naomi Camper, the ABA's chief policy officer. "We want customers who develop trust over the years, who can start out with a transactional account and maybe that grows into a savings account ... or an auto loan or mortgage account that helps them gain their financial footing."

Still, Camper adds, the pandemic "shone the spotlight on the importance of getting people into the banking system. ... During the pandemic, getting people banked was both urgent and important.''

The FDIC, whose template for lower-cost checking accounts helped spur the Bank On standards, launched a #GetBanked webpage last year that helped households receiving stimulus checks find where they could remotely open an account.

A pilot #GetBanked campaign also focused on Houston and Atlanta, cities that have a high percentage of Black and Latino households without bank accounts.

That pilot program ended in June, but the agency is considering a follow-up campaign that will focus on encouraging the unbanked in three other metropolitan areas to open accounts in time to get their tax refunds next year.

"We know that for a lot of families, a tax return can represent the largest check they get during the year,'' says Julianne Fisher Breitbeil, an FDIC spokeswoman. "If we can reach people in the middle of the process, perhaps … the money can go right into a bank account.’’

Overall, the number of people establishing relationships with banks and credit unions is improving, she says.

"There are some people who are never going to want a bank account,'' says Breitbeil. "But for people who may not know there are opportunities out there, our hope is for them to at least see that there might be something that ... would really help them get to a position where they're saving more of their money for themselves and have that control over their own funds to use when and how they need it.’’

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This article originally appeared on USA TODAY: Stimulus check delays stir efforts to get more people bank accounts