Academic

Sunday's Washington Post's had a story about the "unbanked" and "underbanked."  You are considered unbanked if you don't have a checking or savings account, while you are underbanked if you have a checking or savings account, but rely on non-bank alternative financial services such as check-cashing services, payday loans, or pawnshops.  The story noted that the FDIC had conducted the most comprehensive survey to date on the unbanked and underbanked, and the survey found, among other things, that 17 million Americans are unbanked and 43 million are underbanked.  Hence, the Washington Post story noted that some 60 million Americans "conduct their day-to day financial business outside the banking system."  The story concluded that the survey was a good first step in shedding light on a problem that consumer advocates have been trying to address for years, particularly because the problem leaves many people potentially open to being preyed upon by institutions that charge high interest rates and fees for their services.  Indeed, the FDIC met this month to discuss the results of the survey, noting that information from the survey would help broaden consumers' access to the financial mainstream.  While I found the story interesting and its bottom line essentially non-controversial, the comments to the story seemed to differ dramatically, raising at least two criticisms.

The first seemed to be along the lines of the cure being worse than the disease.  That is, a lot of comments noted that criticism of alternative financial services may be unwarranted or at least unduly harsh.  This is because while those services may charge high fees and interest rates, they also may prove beneficial for some consumers.  Indeed, even the survey noted that consumers steer clear of banks often because of issues associated with fund availability and preferable services.  Hence the survey noted that efforts needed to be made to create opportunities for banks to better serve these markets "both profitably and effectively."  The survey also noted that consumers cited high fees and other penalties as some of the primary reasons why banking services were less attractive.  To be sure, the Washington Post story seems to recognize this problem, noting that the current crisis has demonstrated that "the traditional banking system can be as abusive as the non-bank financial institutions." 

The second set of criticisms seemed to focus on the problem of unintended consequences.  That is, many seemed concerned about history repeating itself in the form of government attempts to incentive banks to support the underserved.

In the end, I think the comments suggest that while the survey may have important aims of providing more information about the unbanked and underbanked population and ensuring that more consumers have access to effective banking products, those comments also remind us that we need to proceed with caution.