The Unbanked of New York City

How does someone without a bank account navigate the city’s increasingly digitized financial system?

Many unbanked individuals exchange their paychecks for cash at check cashing shops / Photo courtesy of Alexandros Chatzidimos for Pexels

By Yoonji Han and Caroline Chen

It was a hot summer evening, and all Hembert Figueroa wanted was a cool drink. He watched longingly as passersby slurped on iced juice and licked ice cream cones, which they’d probably bought with a simple swipe of their credit cards or tap of their phones. But Figueroa didn’t have a single dollar in cash to buy a bottle of water. He didn’t have a cent in his bank account either. In fact, he didn’t have an account at all.

Until recently, Figueroa, 44, was part of New York’s unbanked population—the nearly 360,000 households in the city that don’t have a banking account. When he first arrived in the United States four years ago from the Dominican Republic, others in the immigrant community told him to “stay invisible, anonymous,” which meant no IDs or credit cards. Whenever he sent money to his family back home, Figueroa sent it under his brother’s name out of fear.

People who don’t have a banking account have to use cash or other alternative forms of payment, like a prepaid card or check cashing service. Mostly to accommodate the needs of these residents, the City Council voted to ban cashless businesses in January, making New York the fourth city in the United States to make it illegal to deny cash payments.

“The potential societal cost of a cashless economy, I think, outweighs the potential benefits for businesses,” says Ritchie Torres, the Bronx councilman who introduced the bill, referring to benefits like speedier service and reduced theft at cashless shops and restaurants. While the cashless ban potentially makes things easier for the unbanked, daily life without a debit or credit card still comes with difficulties for many New Yorkers.

Like many other unbanked individuals, Figueroa lived paycheck to paycheck. Every week, until he finally opened a bank account two years later, he would have to go to a check cashing store. Of the $700 he earned in a restaurant in Manhattan, tips included, he sent $300 to his family overseas and paid $125 in cash to his landlord, “hand to hand,” leaving him around $275 for living expenses like food and other necessities.

Without a bank account, Figueroa said he felt like he wasn’t in control of his finances. “Sometimes I didn’t know where the money went,” he said. “I always felt like I was short on money. I’d joke that my name was Hembert Short.”

Much of the low-income population in the city is paid primarily by paycheck rather than through other methods like direct deposit into bank accounts. And they end up spending almost 100 percent of the money they earn, making it fairly impossible for them to have any savings, according to Bernard Saavedra, a senior financial coach at Neighborhood Trust Financial Partners, a national nonprofit social enterprise that seeks to empower workers to take control of their finances.

“When you are living paycheck to paycheck, it is difficult for you to wait a couple of days until you get your money,” Saavedra says, referring to the time it takes for bank deposits to be processed. Instead, many people without bank accounts bring their paychecks to a check casher, where they pay a set fee—for example, 2 percent of the total amount—in exchange for cash on the spot.

Being unbanked creates other hurdles in daily life, too. Things that are simple for so many people, like writing a check to cover the electric bill, can take hours for those without a bank account. Every month, for example, Michael Brown, 40, who does not have a bank account, has to physically go to his utility company’s office in the Bronx to pay his electricity and gas bills, a trip that could take as long as an hour. One time, Brown discovered that the few machines that accepted cash in the office had broken. The employees there could only process card payments on that day, so Brown had to travel another 40 minutes to the utility company’s Harlem branch to pay his bills.

It would have been much easier for him to pay online or with a credit card, of course. But that’s not possible for someone like Brown, who is unemployed and lives in housing provided by Project Renewal, a nonprofit that helps the New York City’s homeless. “I don’t have the money to pay for convenience,” said Brown, adding that he couldn’t afford to shell out money for unexpected fees. He isn’t the only one who worries about that, it seems.

“The most common reason for not having a bank account is uncertainty about fees for overdrawing an account or not keeping a minimum balance,” said Melissa Barosy, press secretary of the city’s Department of Consumer Affairs.

A map showing the concentration of the unbanked population in New York according to neighborhood, 2013 / Courtesy of the Urban Institute

New Yorkers, in fact, are more likely to be unbanked than those in the rest of the country, even though New York City has one of the most robust financial systems in the world. Here, 11.2 percent of all households are unbanked, compared to the national figure of 6.5 percent, according to the city’s Department of Consumer and Worker Protection.

This phenomenon could be, according to experts, simply because the poverty rate here is higher than the national rate. About 17.5 percent of households in New York City live below the poverty line, compared to 11.6 percent of the nation’s households.

And the areas of the city with the most unbanked households, Barosy believes, correspond directly with the neighborhoods with the most low-income households. Take the Bronx, for example, where 27.3 percent of residents live in poverty, according to the United States Census Bureau. Households in the borough are almost twice as likely to be unbanked than New York City as a whole, with 19.3 percent of Bronx residents reporting they do not have a bank account.

The large immigrant population also contributes to the high number of unbanked households in New York City. Of the unbanked individuals, 70 to 80 percent are documented immigrants, and a smaller percentage are undocumented, Saavedra from Neighborhood Trust points out. Many of these people are concerned that if they give the personal information needed to open a bank account, they may get into trouble with enforcement agencies and immigration authorities.

Other unbanked individuals are influenced by widespread misconceptions about the financial system within their community. Some believe that banks have strict identification requirements, or that the minimum amount needed to keep the account open is too high. They aren’t aware, says Saavedra, that many banks have very low or no minimum balance thresholds.  Others think banks lack transparency, surprising unsuspecting account owners with “hidden” fees that appear on their bank statements only at the end of the month.

Their distrust of banks leads many individuals to seek financial alternatives like check cashers or transfer agents as a way to bypass mainstream financial institutions. Seventy percent of New Yorkers, reports the Department of Consumer Affairs, use these agents to send money back to their home countries.

Another problem: Unbanked individuals often learn how to handle their money from other families and friends who also don’t have bank accounts, making it even more difficult for them to change their financial habits. As a consequence, they don’t know how to use a checking or savings account. Some have never been exposed to using ATMs either.

Nor do they know about building credit, which is a crucial way to avoid the vicious cycle of predatory lending. If a person is in debt, the money from their paycheck goes directly into paying off their loans. On top of the other living expenses, these loans lead them further into debt, increasing the chances of needing to borrow money again. Lacking credit history also can bar people from renting an apartment or finding employment.

New York’s government has been working to reverse this cycle by improving the financial literacy of the public through free  counseling services. The Department of Consumer and Worker Protection has conducted more than 114,000 financial counseling sessions for 57,000 New Yorkers since 2008. It is also collaborating with banks and credit unions to make it easier for people to open an account, including offering affordable starter savings accounts and accepting IDNYC—a free government-issued ID card which doesn’t require immigration status—as a valid form of identification.

And nonprofit organizations like Neighborhood Trust Financial Partners, where Saavedra works, are also being funded by the city to expand financial education outreach to people like Figueroa who were frightened by the idea of having a bank account.

“Education is key,” says Saavedra. “We need to get them familiarized with these financial tools.”

It made all the difference for Figueroa. After getting advice and assistance from Neighborhood Trust, Figueroa applied for an IDNYC and opened a credit union account two years ago. He also opened a proper bank account and is no longer unbanked. He now deposits his paycheck by uploading a picture of it onto an app on his phone and hasn’t had to use a check cashing service since last October.

“I feel more at peace with the security,” he said, and he says he feels he has more control over how he spends his money.

A few weeks ago, Figueroa bought two cups of hot chocolate and a croissant to share with his brother in Bryant Park. It cost $20—overpriced in his view—but the freedom of being able to afford it tasted sweet nonetheless.

Correction: This story has been revised. In the original version, we had a mistake in the job title for Bernard Saavedra and described Neighborhood Trust Financial Partners incorrectly. We apologize for the errors.

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