The title lending, fast cash providing, and payday lending industries have for a long time been earmarked for reforms due to the high rates of interest they levy on the poor working-class sections, the ones who usually indulge in such borrowing. But nowadays even financially better off sections of the society, the middle-class, the college pass-outs who have respectable jobs and own their own homes are having difficulty meeting their financial requirements and thus end up going for these loans with exceedingly high rates of interest.
Banking institutions were subjected to a large number of new regulations after the recession of 2008. The major regulation was the inception of 2009’s Consumer Financial Protection Bureau, and 2010’s Dodd-Frank Act. Some of these strict regulations have had an astonishing effect on these institutions across America with banks feeling like they have gotten smacked so much for being an active part of providing subprime loans and engaging in the sale of subprime credit cards. This implied guilt and fear of dire consequences have resulted in them withdrawing even more from the low-scale loan market. That has led to the creation of financial problems for low earning and middle-class people who require such services of affordable bank loans.
This fear and controlled actions, however, has not been seen in the bigger banks, the giants operating on Wall Street. They were the major defaulters who played a huge role in the 2008 crisis but even with the advanced levels of regulation, the big banks feel they can avoid getting into trouble, Wells and Fargo being a perfect instance.
We have seen millions and millions of dollars charged in penalties on Banks. Wells and Fargo for their recent scam of creating fake accounts. Citibank too was charged with heavy fines for the sale of identity protection on accounts that did not exist in reality. The four of the biggest banks in the country alongside a lot of smaller ones continue to participate in consumer practices that are actually very harmful to the people, and in many cases absolutely illegal.
Most of the times the penalties charged to these banks are trivial amounts of money for them, a drop in an ocean for them because of their enormous sizes.
It can be likened to the company FedEx. It is a part of the business model of FedEx to account for the parking ticket fines they are charged with the offense of double parking. It can be thought of as something similar to banks. The penalties they may sound to the average American citizen a huge amount which is justified for their crimes, but the reality is that it is a tiny percentage of their operating budget. Average American employees, even if they are working full-time jobs, find themselves in a much more fragile position than what it was in the past.
Looking at reports and data from the Federal Deposit Insurance Corporation, it can be observed that in the past six years, the classification of people goes something like this –
- Banked – the ones who have proper bank accounts in established and traditional banks.
- Unbanked – the citizens who do not have a bank account. A staggering 8% of Americans have no bank accounts.
- Under-banked – the portion of the population which does have bank accounts but they are not fully functioning. 20% of Americans are under-banked. Although these people have bank accounts and access to a bank but have no clue how to use it.
The consequence, according to what respected policy makers and consumer activists, is that something is majorly wrong with the system. People are going for services like fast cash, not by choice, but due to the fact that they’re unbanked.