By Jerry R. Welch
As posted on The Huffington Post
A pilot program approved by the FDIC Board of Directors yesterday to evaluate the feasibility of offering no-frills, low-cost checking and savings accounts is an interesting idea. The program is designed to help millions of “unbanked” and “underbanked” Americans regain trust in the banking system, and develop a relationship with a financial services provider. On the one hand, although well intentioned, this strikes me as “too little and too late.”
On the other hand, there’s already an answer for this serious problem in the relatively new, but high-growth reloadable prepaid debit card industry. These cards are essentially portable bank accounts and are the solution for a growing number of people. A reloadable prepaid debit card can be purchased for as little as $3, and consumers can even load their paychecks onto these cards for free. The prepaid card industry is in the business of catering to this underserved population and is growing very rapidly as a result.
An article in yesterday’s USA Today (“Many shun bank accounts but pay more for financial services”) calls attention to the program and quotes numbers from an FDIC study in 2009 which found that nearly 8 percent of U.S. households or 17 million people are unbanked and don’t have bank accounts. An additional 43 million people are underbanked. That means they have bank accounts but often fall victim to expensive financial alternatives outside the mainstream such as check-cashing services, pawn shops and pay day lenders.