Equity in Lending

Unbanked and Underserved: The Importance of a Bank Account

Nationally, more people than ever are opening bank accounts. Opening and maintaining a bank account can be one of the most effective ways to achieve your financial goals, including increasing your credit score, buying a house, or just finding financial security. In 2023, the US’s unbanked rate dropped to 4.2%-- the lowest level since 2009. Northeast Ohio, however, is seeing a different trend. The unbanked rate in NEO increased from 2.0% in 2021 to 5.4% in 2023–an increase of over 3%!

There are a variety of reasons why people avoid mainstream financial institutions: 

• Lack of trust: Many groups have been victims of racist and exclusionary practices by the mainstream financial industry that have systematically left them out of the system.
• Minimum Deposit: Until recently, most banks required a minimum amount to even open an account and maintain the account, making them inaccessible for many people with inconsistent income. 
• Fees: With inconsistent income, many people face high overdraft and/or administrative fees, making traditional banking too costly. 

Groups that are typically left out of traditional banking tend to be “lower-income, less-educated, Black, Hispanic, disabled, and single-parent households.” Households of color are five times more likely to be un- or under-banked compared to white households.

Those unable or unwilling to participate in the mainstream financial industry have few other options. For most, the only option is to rely on predatory services that require high fees and implement exorbitant interest rates, forcing people to pay up to 5% of their income to access their own money. This could add up to over $40,000 over one’s lifetime. These predatory lenders send people into a cycle of debt that becomes untenable and leads people further into financial instability. Even those who may have a bank account can be considered “underbanked” when they still rely on nonbank financial services, such as check cashing services or pawn shops, and therefore are still vulnerable to exploitative practices. 

This is not inevitable. Bank accounts provide many opportunities in the modern economy, like establishing and building credit, avoiding fees to access their money, and growing wealth.

The Consumer Financial Protection Bureau under the Biden Administration has recently ruled to crack down on bank overdraft fees, offering banks the option to either have a flat $5 fee, cap the fee to cover costs and losses, or “charge any fee but disclose the terms of the overdraft loan they extend to customers the same way they would for those of any other loan.” This new rule can save consumers $5 billion, or roughly $225 per household. Many banks have stepped up to the challenge of making mainstream banking more accessible. Working with the Bank On National Advisory Board and Coalitions across the country, like the ones in Cleveland and Summit County, banks have lowered the barriers to banking. This includes limiting fees, removing minimum balance requirements, and working with community partners to connect people to accounts. 

HFLA of Northeast Ohio can provide a third option. 

HFLA has offered 0% interest loans for 120 years. Rather than continuing to spiral into a perpetual cycle of uncertainty, our loans give people the chance to stabilize their financial situation and start on the path of rebuilding. Our applicants are individuals who often get turned away from traditional banks. They are seeking help to address a need like a required home repair, medical bills, or to get out from predatory loans. We ensure that our loans are accessible, affordable, fast, and fair. Our loans are not “easier” to qualify for, but we work to remove barriers to help people get much needed capital. People are so much more than a 3-digit credit score. We try to understand the whole picture and prioritize repayment history and budgeting plans when considering their application. 

There are still some barriers. All of our loans require a cosigner or guarantor. As a nonprofit, we rely on our loans being paid back to continue our work. Co-signers and guarantors provide a level of security to ensure that the loan is paid back in full.

Our staff will work with an individual through the complete repayment of the loan. Successful repayment is just as important to us as their loan payments go back into our revolving loan fund to help fund someone else’s loan, continuing the cycle. Our hope is that you come to HFLA for your first loan and through our support (and credit reporting) you will be able to access the mainstream financial system for your second loan. 

With unbanked rates increasing in the Northeast Ohio area, support is needed now more than ever. Since 1904 HFLA has created financial opportunities for its community.  If you want to support HFLA’s mission, you can donate here to assist with operational costs to keep our organization going. If you know someone who might benefit from an HFLA loan, please visit us at interestfree.org or contact us at team@interestfree.org. 

To learn more about this topic, take a look at the Federal Reserve Bank of Cleveland’s FedTalk: “A Continued Discussion on Financial and Payments Inclusion”.

by hflaneo