Black Americans are the most unbanked and underbanked group in the nation, with many lacking access to even the most basic financial services, such as a checking account.
Suggested Reading
But what does it really mean to be shut out of the financial system? And more importantly, what needs to change to allow more Black Americans to gain access?
The Root sat down with Representative Maxine Waters (D-CA), ranking member on the House Financial Services Committee, to find out. And as always, the California Congresswoman did not hold back.
“Being unbanked means that you literally do not have a bank account,” explained Waters. “And people do not have bank accounts for any number of reasons. First of all, let me tell you that the big banks are not interested in people who don’t have a lot of money... Secondly, many people have found it easier to deal with some of these operations that do cash checking, which are not good because oftentimes, the interest rates are very high.”
Waters noted that many people who don’t have access to traditional banking often fall prey to alternatives to banking, such as costly payday lenders. “They’ll cash the check for 10% of the check or something, and they’ll loan the money for 300 or 400%,” she said. “And that’s what the Black communities and minority communities are faced with.”
Even people who do have a bank account aren’t necessarily getting the financial assistance provided to wealthier clients, says Rep. Waters. “We discovered that there were people who have been with a bank for 25, 30, 40 years, and they still had no person that they could talk to about the problems that they were having,” she said.
Kyle Moore, economist with the Economic Policy Institute’s Program on Race, Ethnicity, and the Economy, agreed that the banking system is simply not set up for people with low incomes.
“Cost is the primary reason that folks are un or under-banked,” said Moore. “And that can come in the form of a reaction to fees; banks might impose a minimum balance requirement. For a lot of different reasons, access to traditional banking services is costly.”
Moore noted that banks also provide tools for economic mobility that are needed by the very people shut out of the system. “Having access to banking is a sort of foundation that you can use to achieve more economic mobility going forward to take advantage of a lot of different benefits that can allow you to have savings and allow you to build some measure of wealth,” he said. “But if you don’t have access to that, the floor below can be quite sticky in the sense that you’re kind of trapped in paying exorbitant fees.”
The situation isn’t hopeless, though. Moore says that there are things the federal government and the Biden Administration are doing well to help ensure Black Americans have access to banking, but there’s even more to be done.
“The low-hanging fruit is to try to remove as many junk fees as possible, removing overdraft fees, things like minimum balance requirements that primarily limit low-income folks’ access to financial institutions,” he says. “Big picture, the solution is actually an old solution. We had in the past, postal banking, using our postal system as a place where the public could access a checking account and a savings account.”
Congresswoman Waters said that regulating the big banks and ensuring they’re accessible and not engaging in predatory practices is key. “First of all, we should be very suspicious and very careful about these bank mergers,” said Rep. Waters. “What I don’t want is this country to end up with five big banks running the country. You certainly will have even more problems.”
Ensuring that banks are opening branches in under-served communities is also critical. “We’ve got to make sure if we say, you’ve got to put more branches into these communities where there are banking desserts, we’ve got to follow-up to make sure they put those branches there.”
Straight From 
Sign up for our free daily newsletter.