‘Underbanked’ households on the rise in NM

Hispanics more likely to use check-cashing, payday loan services

Despite an improving national economic climate, more New Mexicans are relying on services such as check cashing and payday loans, according to a survey by federal regulators.

Federal Deposit Insurance Corp. data show the percentage of “underbanked” New Mexican households grew from 22.5 percent in 2013 to 26.9 percent in 2015. In contrast, the number of underbanked households remained constant nationally over the same time period, at about 20 percent. Albuquerque saw a decrease, from 24.4 percent to 21.6 percent.

According to the survey’s definition, a household is considered underbanked if the individuals within it possess a checking or savings account at a bank, but also use an alternative financial service like money orders, check cashing, international remittances, payday loans, refund anticipation loans, rent-to-own services, pawn-shop loans or auto-title loans. Such services often have high fees and interest rates, creating a downward financial spiral for the individuals who use them regularly — primarily the economically distressed.

FDIC Chairman Martin Gruenberg said in a statement that addressing the population underserved by banking institutions is crucial for the long-term health of the financial system. Doing so “helps consumers build assets and create wealth, makes them less susceptible to discriminatory or predatory lending practices, and can provide a financial safety net against unforeseen circumstances.”

The survey results also showed that the number of unbanked New Mexican households in which no one held a checking or savings account decreased slightly from 10.9 percent in 2013 to 9.4 percent in 2015. The same was true nationally, where unbanked households fell from 7.7 percent to 7 percent, while the figure dropped from 11.1 percent to 8.6 percent in Albuquerque.

In New Mexico as well as throughout the country, the Hispanic population is far more likely to be underbanked than their Anglo counterparts, according to the survey. The most recent FDIC data show 31.4 percent of New Mexico’s Hispanic households are underbanked versus 18.7 percent of Anglo households. Nationally, the difference is 29.3 percent for Hispanic households versus 15.6 percent for Anglo households, and in Albuquerque

it’s 28.3 percent versus 15.1 percent. Mercedes Garcia, a senior MasterCard executive who works with the credit-card company’s “Master Your Card” community empowerment program, attributed this discrepancy to both the disproportionate rates of poverty among minority groups as well as banks’ lack of outreach to the community. If individuals aren’t familiar enough with traditional banking services that might help them build credit with an institution, she said, they are more likely to rely on costly alternatives for their transactions.

“Not many banks take the time to translate their program materials into Spanish,” said Garcia. “It’s the right thing to do, and it’s a huge business opportunity.”

Garcia said education is key to lowering the rate of underbanked individuals in any population. She said many individuals are under the impression that they don’t have enough money to use a bank regularly, and while some banks do have account minimums and various fees, there are many others that make their services affordable to nearly anyone.

“In some communities, the belief is still that cash is king,” said Garcia. “But our economy is becoming more and more cashless, and not being a part of that can create financial issues that can last generations.”