As the coronavirus crisis took hold, Akeil Smith’s employer reduced his work as a home health aide to 25 hours per week. Her $ 15 an hour wage no longer provided enough to pay her $ 700 monthly rent and she had to visit food pantries to buy food.
While millions of American workers have already received a quick relief payment from the federal treasury through direct deposit, Smith is among millions of other people without traditional bank accounts who must wait weeks to receive paper checks. When the checks finally arrive, this disproportionately black and Hispanic population often has no choice but to use expensive check cashing services to access the money.
“I live paycheck to paycheck, and right now I need more groceries,” Smith, 35, told The Associated Press while inside Payomatic, a small check cashing store in a predominantly black Brooklyn neighborhood.
In the six weeks since the pandemic shut down much of the US economy, more than 30 million American workers applied for unemployment insurance. Congress passed a $ 2.2 trillion economic rescue package.
In April, the government 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. The richest families get little or no payment depending on their income.
To help facilitate the delivery of payments, the government launched an online portal for individuals to provide their banking information for direct deposit. But that system offered nothing to people without checking or savings accounts.
A House Ways and Means Committee memo obtained by AP estimated that about 5 million paper checks will be issued each week, meaning those most in need could wait many weeks to receive their payments.
In Houston, Ta’Mar Bethune, a 41-year-old mother of four adult children raising a grandchild, will likely wait a bit. When she was a younger woman, she struggled for years to pay the bank account fees until her account was closed. In the 1990s, he was also a victim of identity theft and never made a full recovery.
More than 20 years later, Bethune still cannot pass a standard background check to open a checking account because the banking system considers it too risky, she said. To get ahead, transfer the money you earn as a professional hairdresser and babysitter to a non-bank debit card.
“They charge you an arm and a leg,” he said, citing a monthly fee and a fee for each slide or withdrawal. “You never get all your money. It’s bad, but I don’t have a choice.”
Bethune receives financial counseling from the Houston Area Urban League, a nonprofit organization that helps low- to moderate-income families examine their spending and saving behaviors. The organization says that many families are reluctant to open bank accounts, especially if they have been burned by the system.
“Nobody wants to be exploited,” said Carmela Walker, the group’s financial coach.
About 8.4 million US 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 could have a bank account, but members Household members also used an alternative financial service for money orders, check cashing, international remittances, payday loans, and pawn shop loans, often at high rates. costs.
Some of those services have been criticized for being predatory and marketing to black and Hispanic communities, which disproportionately lack banking services. About 17% of black households and 14% of Hispanic households did not have a bank account in 2017, compared to just 3% of white households and 2.5% of Asian-American households, said the FDIC.
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.
“The economic destiny of black America exists on a razor’s edge right now,” Richardson said.
Advocates say the federal government should use pandemic payments as an opportunity to attract more people into the banking system through Bank On accounts, which are insured by the FDIC, cost $ 5 or less a month and do not allow overdrafts. nor do they charge fees for insufficient funds. The accounts can be used for direct deposit, purchases, and bill payment.
Otherwise, long lines at check cashing stores could extend into the fall and pose a public health hazard.
“Now there is a health component to not having access to banking services: people are going to have to take literal risks with their health to receive and then spend these dollars,” said Jonathan Mintz, CEO of Cities for Financial Empowerment Fund, who aims to get underserved Americans set up with affordable bank accounts.
The opportunity to attract customers with aid payments is not lost at the check cashing and payday loan companies, a network of $ 11.2 billion stores in cities large and small.
In Brooklyn, B&H Check Cashing, in the predominantly Hispanic neighborhood of Bushwick, posts its check cashing fees on a wall. A check for $ 1,200, for example, would cost $ 26.76 in cash.
Essence Gandy, 26, was in a line of two dozen people snaking past a PLS Check Cashers in Brooklyn to collect loose change at a Coinstar kiosk. His checking account was closed months ago because he had insufficient funds and was unable to get back in good standing.
“I have bills as well as bills,” said Gandy, who also has credit card debt and is behind on payments to a mattress store. She said she hopes to use the federal aid payment to catch up on bills and will likely cash the paper check at PLS.
A representative for PLS, which has 300 locations in 12 states, said it has been informing repeat customers that stimulus checks can be cashed at the lowest rates.