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Regulating bad actors isn’t tricky! One reason predatory financial mechanisms has flown under the radar may be that, so far, it’s a problem that has primarily affected minority.
African Americans, Hispanics, unmarried individuals and those younger than age 30, and individuals residing in low-income or predominantly minority have nearly no credit than other groups defined by race or ethnicity,marital status, age or location.
“unbanked,” “underbanked” or “credit invisible”—and it’s hurting opportunities for gaining employment, establishing credit and building wealth through home ownership.
According to the Policy Economic Research Council (pdf), approximately 54 million Americans are “credit invisibles”—which means that they engage in creditworthy activities, such as paying utility and phone bills on time, but are effectively invisible to credit agencies, which don’t take into account those kinds of payments when determining credit scores.
And the result has harsh real-world consequences.
Renting an apartment, qualifying for reasonably priced homeowners and car insurance, getting a job if you’re unemployed and securing a promotion if you’re already working are all things that can depend on your credit score.
Predatory Financial Mechanisms Are An Inexcusable Banking Alternative
An equally disadvantaged group is “unbanked” (pdf)—the 8.2 percent of U.S. households that don’t have a checking or savings account and must rely on check cashiers or prepaid cards, of the variety that are notoriously marketed in African-American and Hispanic communities. Another 20.1 percent are “underbanked”: households that have a bank account but are still forced to use high-interest, subprime financial services, such as payday loans, to make ends meet.
More than 55 percent of black households are unbanked or underbanked, the highest of any racial or ethnic group, and this means that a majority of African-American families don’t have access to affordable financial solutions.
The Society for Human Resources Management reports that 60 percent of U.S. employers use credit checks as part of their screening process for job applicants. This is, in part, the reason many African Americans are still struggling to find work. And it also explains how credit invisibility and being unbanked or underbanked exacerbates existing racial bias in hiring and lending.
As African Americans are increasingly excluded from mainstream financial services, their options for employment and wealth creation through home ownership are exponentially decreased. Lost opportunities resulting from racially biased lenders and employers—which are difficult to quantify—further complicate matters.
Edward’s article discusses primarily the reason African American and how they are increasingly excluded from mainstream financial services, employment and wealth creation. It’s important to know Hispanics, unmarried individuals and those younger than age 30 are equally excluded from mainstream financial services, employment and wealth creation.
Reasons Households Were Unbanked
Unbanked households cited both economic and attitudinal reasons for remaining outside the banking system.
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