The Impact of Banking and Fringe Banking Regulation on the Number of Unbanked Americans

Thirty-five to 45 percent of low-income American households do not possess a bank account. This statistic coupled with claims of price gouging by check cashers has prompted government intervention. Ifind that state legislation requiring banks to offer low-cost accounts slightly decreases the number of low-income minority unbanked households, but only with a substantial lag. Caps on check-cashing fees also lead to a small, but more immediate, reduction in the number of unbanked among this population. Because price caps may lead to a reduction in supply, welfare effects are indeterminate. To be unbanked is to be under an economic disadvantage. It means that many people have to rely on fringe banking services, such as check-cashing outlets with high fees. But what is worse is the savings deficit that it creates for many working-class, and minority, and young citizens, who have a much harder time acquiring and building assets. Senator Joseph Lieberman (Stegman 1999)