A stressed upset couple sits in front of a banker who looks like she's rejecting them for a loan.Photo byStudio Romantic via Shutterstock

Our banking system seems fantastic if you’re living in a middle-class bubble.

We get a safe place to store our money with instant access whenever needed. We also get paid in interest for safely storing our cash.

But these systems don’t work for everyone. Millions of the unbanked poor know that the system won’t help them.

Banks keep people poor.

Millions of Unbanked

Approximately 6% of American adults (close to 20 million people) are “unbanked,” that is, they don’t have a bank account.

Although some admit they avoid banking because they don’t trust the system, most simply can’t afford it.

Banks may help you and me, but they do so at a cost. They harm poor people to make money.

How Banks Keep People Poor

Our financial institutions are complicit in America’s poverty trap. Banks keep disadvantaged people trapped in poverty.

They charge overdraft and account maintenance fees to those who can least afford them. They refuse to issue loans to those with a poor credit history and refuse to cash your check unless you’re a customer.

But they’re happy to offer prepaid cards with outrageous fees and blacklist the poorest customers.

The Privilege of No-Cost Checking Accounts

Most banks offer free checking - but these accounts come with a giant asterisk.

As long as you have a job that offers direct deposit and make enough money to spend a few bucks each month, you’ll never have to worry about paying an account maintenance fee.

But the second you lose your job, you’ll discover that free checking isn’t free. Each bank has different requirements for access to “free” checking, but most require either/or direct deposit, maintaining a certain balance, and making an arbitrary amount of transactions each month.

If you fail to meet those requirements, they will charge you.

People living in poverty struggle to meet these arbitrary requirements. They don’t have the privilege of a no-cost checking account.

Many work for cash or tips, so they don’t get direct deposit. They barely make enough money to survive, so they can’t maintain a minimum balance. They can’t even save because the bank requires them to use their card to avoid fees.

People remain unbanked because they can’t afford to pay for bank accounts - the same accounts people with money get for free.

Banks Harm Poor People with Overdraft Fees

Banks charge outrageous overdraft fees, and they’re often sneaky about calculating overdrafts to siphon as much money out of people’s pockets as possible.

Many financial institutions charge up to $35 for a single overdraft, but they don’t stop there. They will also count the largest transaction first to charge the maximum fees.

Let’s say Joe has fifty bucks in his account. He buys a pop for a dollar, then some five-dollar snacks. Next, he puts 40 bucks worth of gas in his car. Finally, he goes and picks up dinner for his family for 20 bucks.

The bank won’t process those transactions in order and only charge one overdraft fee. Instead, They will process the forty-dollar transaction first, then charge an overdraft fee on the twenty-dollar transaction, the five-dollar transaction, and the one-dollar transaction.

What should have been a single overdraft fee ballooned into three. Now Joe has to pay over $100 to get out of the red. It’s hard to come up with $35 for a single fee when living paycheck to paycheck, so $100 seems impossible.

But it doesn’t stop there—some banks will charge another overdraft fee if the original fees aren’t paid within a few days, making it impossible to recover.

Banks Blacklist Poor Costumers

If you get into financial trouble with the banks, you risk losing access to their services. Joe couldn’t pay his overdraft fees, so the bank canceled his account. But he still owes them money, so he can’t open a new account.

He’s effectively blacklisted from the bank.

If the bank reports the delinquency to the credit reporting agencies and it appears on his credit report, he may be denied access to banking at every financial institution.

He’s now blacklisted from banking.

If you’re blocked, you no longer have access to a checking account, and getting ahead will be even more challenging.

You can’t work anywhere requiring direct deposit, and you must rely on check-cashing services to access your hard-earned money.

The Problem with Check-Cashing Services

Check-cashing services allow the unbanked to cash checks but charge outrageous fees for the pleasure. People without access to checking accounts must pay to access their own money.

Walmart is probably the best option for check cashing if you don’t have a bank account, as they only charge three dollars for checks up to $1000. But even at that, three dollars is a lot for the poorest amongst us. And the poorer still may not even have access to a Walmart in their neighborhoods.

Some people’s only option is to cash a check at those notorious payday lending stores or fly by night check-cashing stores. These establishments can charge up to 5% to cash a check – that’s 50 bucks on a $1000 check!

Can you imagine paying close to fifty dollars just to access your money? The poorest amongst us get caught up in this cycle, making it even harder for them to get ahead.

Pre-Paid Cards

Companies and financial institutions have recently started offering pre-paid cards to unbanked customers. Some workplaces offer to pay employees with a card, while some banks will allow blacklisted customers to put their paychecks on a card rather than in an account.

Pre-paid cards work like debit cards but aren’t tied to accounts. They’re more like gift cards, where you put money on them and then can use them to pay for things until the money is gone.

Although pre-paid cards offer the unbanked flexibility, they come with massive fees. Most charge a monthly fee, like checking accounts (which some waive if you opt for direct deposit), while others charge a fee for each transaction.

Imagine paying up to $4 every time you buy something! Now, imagine paying that much when you live paycheck to paycheck.

Well – Don’t Overdraft Your Account

A ton of people are probably thinking to themselves that it’s these people’s own fault. They shouldn’t have over drafted their account. They should have budgeted better. Maybe they shouldn’t have signed up for what banks like to call “overdraft protection” in the first place if they couldn’t manage their money.

Take a moment and think about this.

You’re saying that the poorest people, those who barely can afford to live, need to be better at money management? There’s no money to manage in the first place! Not only that, but can you imagine being penalized so much for the simple fact of being poor?

But also, let’s talk about how banks spin this overdraft protection. Due to consumer protection laws established in 2010, banks can’t force customers to accept overdraft fees.

Customers must “opt-in.”

The last time I opened a checking account, I had to watch a 10-minute video explaining how great overdraft protection is because of all the “flexibility it offers” (granted, it also discussed the other option of turning it off and having your card declined when you lack funds), and then I had to choose my preference.

It’s easy to see why those who lack financial education would choose what banks call “overdraft protection.”

Many people live paycheck to paycheck and over-draft their accounts because they have no other options or don’t understand finance.

It’s easy to blame them for their lot in life, but I think we’d all be better off if we found ways to fix the systematic injustices that plague our society rather than shrug them off as someone else’s fault.

The Unbanked Have No Access To Loans or Credit

Banks hurt poor people by refusing to offer them loans or credit. Research shows that lack of access to credit is one of the major indicators of a poverty trap.

The unbanked can’t use credit cards to cover emergencies. They can’t take out a loan to buy a car or finance a mortgage. Their inability to access these necessary financial services keeps them trapped in institutionalized poverty.

Why is it Difficult for the Poor to Get Loans from Banks

I understand from the bank’s perspective. Financial institutions are businesses, and poor people have high-risk credit profiles. The bank would take a giant risk in offering them a loan, and lack of access to credit is only one factor that keeps people poor.

We shouldn’t force a bank (or any private entity) to offer loans to customers who might not pay them back. That would harm private industry.

How Can We Help the Unbanked?

I’m not a policy person, and don’t pretend to know the right answer.

However, we have options. We should at least explore them.

Here are two ideas I’ve seen thrown around, but innovative politicians can probably think of many more.

Use the Postal Service

A former presidential candidate had the idea of transforming the post office into a mail delivery service/banking system. It would offer no-fee checking accounts and loan services for underserved communities.

The beauty of this idea is that the infrastructure is already in place. There are post offices in most communities. The government can protect its interests by not allowing customers to overdraft and by not offering interest on accounts.

There would be no risk and no reward for either party.

The post office can also offer loans to underserved communities. Yes, it’s a high risk for the taxpayers, but if payday loan services can do it and make a profit, the government can find a way to do it and actually help people.

Any interest on loans can go back into making the post office viable.

Force Banks To Offer Options

Alternatively, the government can force banks to offer no interest, no fee, no overdraft, and basic checking accounts to anyone who needs one.

These accounts would not make the bank any money, and ultimately, the rest of the customers would pay to help administer them.

I don’t like this solution, as I’m not a fan of having the federal government force private industry to do things they don’t want to do that would lose them money unless it impacts the health and safety of the general public. However, it’s worth exploring as an option.

We Can Find a Solution

I don’t know all the answers.

However, I do know the problem contributes to generational poverty. It’s systematic.

We, as a society, could find a way to solve it. We could do something to ensure that even the poorest among us can access and utilize their own money at no cost. I'm a novice, and I threw out two potential solutions, I'm sure people in policy can come up with something even better.

What do you think?

This article was produced and syndicated by Partners in Fire.