Banks get a lot of bad press. So do check-cashing outfits. Payday lenders may get the worst press of the three.
All of them are just businesses, trying to figure out how to grow when so many people in the state have less money to throw their way.
If you need reminding, at least one third of Michiganders are low income and working. Another 17% live in poverty.
More than 7% of the state doesn’t use a bank at all, and close to 20% of Americans use a bank for some things, but still rely on places like check cashing stores or prepaid cards.
That leaves a lot of advertising on one side, bad press on the other and a lot of choices to make sense of when it comes to cashing checks, paying bills and getting access to credit. If you don’t have much money to spare, these choices can be higher stakes.
Hank Hubbard is the President of the Communicating Arts Credit Union. It has about 10,000 members in and around Detroit. Hubbard says it’s important for consumers to be honest about what drives many of their financial decisions. It’s not always about the best deal, he says, but about comfort and relationships.
The good, the bad, and what’s in it for me:
Banks: Not all banks are the same and for the most part, low-income customers will be better off at community banks than big national or multinational banks. The simple reason is fees.
Most of the largest banks have monthly fees for checking accounts, services like using out of network ATM’s, and especially overdraft fees. Fewer people are getting charged overdraft fees so it’s more expensive for those who do. Those with the least amount of money at the bank generally have the most fees to deal with, so big banks are often not a good option for a low-income customer.
Community banks tend to have lower fees, but do your research. Credit unions are non-profits, and most don’t have any fees for checking accounts or other services like bill paying.
The upside to using a bank is, as Hubbard says, “developing a relationship with somebody who can help you.” That help from a bank comes in the form of credit, or loans, if times get tough. The loan rates and credit card rates offered by credit unions in particular are low.
They are certainly much lower than payday loans. Hubbard’s CACU has a loan similar to a payday loan, but the interest rate is 18%, instead of what amounts to about 300% easily found at a payday lender or cash advance store. Payday loans from online sources have even more hidden fees.
No bank, just cards: It’s easy enough to do all your financial business now with a combination of debit, credit or pre-paid cards.
Cards like the Bluebird (from Wal-Mart and American Express) offer many of the same services as banks. According toresearch from Consumer Reports, it doesn't have many of the fees that come along with big banks. These cards also have an advantage over dealing mostly in cash, in that they offer more protection if they’re lost or stolen.
The downside of these cards is that they don’t get their customers access to affordable credit. Credit is where fees and complications grow quickly, so giving up access to it is something to consider.
Neighborhood places that offer financial services (check cashing, etc.): If a relationship is what you want, you’ll often be able to find that at a local check cashing store, or even a grocery story that offers check cashing and money orders, for example. Some store owners will even offer small amounts of credit at their store to loyal customers who use their services. For some, it can also be less intimidating to ask about financial services at one of these places instead of at a bank.
The downside of this choice is that they charge fees for every transaction. Those fees may be small but they do add up. Access to credit is also an issue. Some of these places offer payday loans which can cause trouble quickly.Others offer only informal credit which can cause problems for collections and also for building a credit history to help with loans later on.
Relying primarily on a local store for financial services probably also means dealing mostly with cash. Having only cash on hand can make saving difficult and of course cash can always be lost or stolen.
What’s your financial services mix? Do you prefer to stick with one place or use services from a variety of places around your community or online. If you’ve got tips or insight to share let us know at infowire@michiganradio.org or 734-763-0538.
