Earlier this week I had the pleasure of hearing Professor Lisa Servon share highlights from her latest book, "The Unbanking of America," at Politics & Prose here in Washington, DC.
As a professor and former dean at Milano School of International Affairs, Management, and Urban Policy, part of The New School in New York City, Servon is a leading voice in the academic and consumer advocacy community. Specifically, her research has been fundamental in understanding why so many Americans are turning to alternative financial services.
You may ask, who exactly are the “unbanked” anyway? They're people who underutilize traditional financial services, such as checking accounts, which are thought to be more cost effective and less predatory than check cashing providers and payday lenders.
An important theme throughout the book is to avoid assumptions about the types of consumers that use these fringe products and services. We often think of this group as acutely unaware of traditional banking. However, many of them are far from new to banking.
For instance, small business owners often turn to check cashing so that they can pay their workers the next day on the job. Perhaps more surprisingly, a growing number of college degree holders are turning to payday lenders to make ends meet. This is troubling as we consider this demographic to be the stalwart of America’s middle class. To consider this the new norm should give everyone pause.
Causing this phenomenon are a variety of macroeconomic issues, such as rising costs of living, underemployment, and market volatility. There are also personal trials at play, such as sudden illness and divorce, which wreak havoc on household finances. A young woman in the book recounts her fall into financial ruin, and a disenchantment with the American dream. For her, it belonged to her parents only.
Many parts of the country are facing an epidemic of gigantic proportions now that payday stores have outpaced McDonald’s in growth. Instead of simply being happy places of discovery, credit unions have a unique opportunity to show consumers a better financial path forward. With less expensive financial products, and regular returns to members, we must engage with the communities that need us the most.