Millions of dollars in federal relief payments are flowing into taxpayers’ bank accounts via direct deposit.
But Americans without bank accounts have to wait weeks more to receive paper checks. Many of them are among the nation’s poorest families.
Advocates for the poor say this is an opportunity to get so-called unbanked Americans into the formal financial system.
When the checks finally arrive, this disproportionately black and Hispanic population often has little choice but to use expensive check-cashing services to access the money.
In the six weeks since the pandemic shut down much of the U.S. economy, more than 30 million American workers have filed for unemployment insurance. Congress passed a $2.2 trillion economic rescue package.
The government in April began sending $1,200 for each individual, $2,400 for each married couple and another $500 for each dependent child to poor and middle-class families across the United States. Wealthier families get either a reduced payout or nothing depending on their income.
To help smooth the delivery of the payments, the government launched an online portal for people to provide their banking information for direct deposit. But that system offered nothing to people without savings or checking accounts.
A House Ways and Means Committee memo obtained by the AP estimated about 5 million paper checks will be issued each week, meaning those most in need could wait many weeks for their payments.
Approximately 8.4 million U.S. households were considered “unbanked” in 2017, meaning that no one in the household had an account, according to the Federal Deposit Insurance Corp. Another 24.2 million households were “underbanked,” meaning they might have a bank account but members of the household also used an alternative financial service for money orders, check cashing, international remittances, payday loans and pawn shop loans, often at high costs.
Some of those services have been criticized for being predatory and marketing to black and Hispanic communities, which are disproportionately unbanked. Roughly 17% of black households and 14% of Hispanic households were without a bank account in 2017, compared with just 3% of white households and 2.5% of Asian American households, the FDIC said.
Banking is a social justice issue with the potential to widen America’s racial wealth gap, said Cy Richardson, vice president of the National Urban League.
“Black America’s economic destiny exists on a razor’s edge right now,” Richardson said.
Advocates say the federal government should use the pandemic payments as an opportunity to bring more people into the banking system via Bank On accounts, which are FDIC insured, cost $5 or less a month and do not allow overdrafts or charge insufficient-fund fees. The accounts can be used for direct deposit, purchases and paying bills.
Otherwise, long lines at check-cashing stores could stretch into the fall and pose dangers to public health.