Being unbanked is really expensive.
According to the FDIC, 7.7 percent (1 in 13) of households in the United States were unbanked in 2013. This proportion represented nearly 9.6 million households.
There's an seemingly easy fix for this: universal basic checking accounts for everyone, established when you receive your social security number, green card, or permanent alien number, etc.
Tell me why we shouldn't do this. I know why we don't; poverty is intentional, and America has a notion that public enterprise destroys the private sphere.
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I know there are laws that require free checking accounts, but I don't know how strong or ubiquitious they are.
ReplyDeleteDidn't one of the candidates propose the post office offering banking services on the cheap?
ReplyDeleteI believe this is part of the reasoning behind the Post Office Banking proposal that Bernie Sanders made during his campaign.
ReplyDeleteI think it was.
ReplyDeleteNow tell me why it is a bad idea.
Well, if I have to play devil's advocate, I would argue that this couldn't be a cost-neutral program - this will probably lose money. As a source... wsj.com - End Is Seen to Free Checking
ReplyDelete...suggests that free checking accounts cost about $250-$300 a year to maintain when they don't have minimums or other onerous charges. Whether you care about ~$1billion/year to help people with a targeted social program is something that breaks down into predictable lines and rhetoric.
Gaylord Tang it was a functional system in this country in the past, and would not require additional personnel to handle the transactions (the main cost in banking that is often sited), That leaves processing electronically (which has changed considerably since the previous post office banking system we had).
ReplyDeleteWith a little clever application this could be made as low cost as the automated stamp machines that most post offices have already in place and establishing a debit card like operation.
I doubt the 1 billion annual cost estimate... and I will note that the 2010 article you quoted was, well wrong. I have free checking (except for paying for the printing of physical checks) and numerous banks still do offer it. The overdraft fee losses were not the great financial burden that damaged the banking industry, that was the banking industry itself and the games it played with mortgages etc.
Banks do not run a 'thin margin' they have lots of other opportunities to profit and do.
Joseph Teller Easy. I asked for the negatives. :-)
ReplyDeleteI checked; PNC (my bank) has free checking, but only if you have at least 500 in average monthly balance / monthly direct posit / are 62 or older. (I .. have free checking. Enough said about that.)
But, if you have $100 a month and no direct deposit? Then it costs $7 per month.
Gaylord Tang Hi! We don't know each other. I'm glad you joined in.
ReplyDeleteYou're right, it woudl cost something. If nothing else, having secure servers costs money. You can maybe sell bonds and securities based on the average amount the bank has in a day, that sort of thing. But that gets real esoteric real fast. It probably would cost money.
At $3 a person (billion dollars, nearly a third of a billion of us) per year, I think that is a huge savings for the economy as a whole.
Well, if you want negatives.... longer lines at the post office... and a good way to put the Check Cashing Industry out of business (but they often also run wire transfer and payday loans so maybe not).
ReplyDeleteYes, hello. I must be connected through other people. Feel free to delete if I go internet crazy.
ReplyDeleteI'm not highly motivated to defend much of the WSJ article, but I don't really doubt the figure of $300/per account in cost to run an "free" checking account. A difference between a free checking system and postal banking is that postal banks are usually savings accounts, not checking accounts. Check clearing has gotten a lot more automated, but is more of a service than savings (and postal money orders).
Gaylord Tang Is the key difference the number of times per month that you can withdraw?
ReplyDeleteSavings accounts also don't count against reserve requirements.
ReplyDeleteThat's true! If you maintain checking accounts, you have to have a whole bunch of it as stored cash. That gets expensive, too.
ReplyDelete