Skip to main content

New JEC Report Finds Barriers to Financial Inclusion Cause Widespread Economic Harm

Today, Chairman Beyer and the U.S. Congress Joint Economic Committee released a new report that finds nearly one in five U.S. adults are either unbanked or underbanked, and of the roughly 20% who lack access to a bank account or rely on alternative financial services, a disproportionate share are lower-income earners or people of color.

Entitled, “People of Color and Low-Income Communities Are Disproportionately Harmed by Banking and Financial Exclusion,” the new report makes clear that marginalized communities are those most likely to face barriers to mainstream banking and financing, which leaves few options to access credit and build wealth. This renders workers and families vulnerable to predatory lending practices, such as payday loans, which typically come with steep financial costs and trap consumers in a cycle of debt.

Among the report’s findings:

  • Black and Hispanic Americans are more than twice as likely as white Americans to be unbanked or underbanked, and families at the bottom of the income distribution are more than six times as likely as families at the top to be among the unbanked or underbanked.
  • In many Black and Hispanic communities, check cashers and payday lenders are more common than bank branches and offer more accessible hours, and prior to the coronavirus pandemic, financially underserved, unbanked and underbanked Americans spent an estimated $189 billion in fees and interest on financial products. 
  • Black and Hispanic households are more likely than white households to be denied or not receive as much credit as requested when applying, and the racial gap in credit access widens for consumers with family income greater than $100,000.

“Access to banking and financial services are vital to actively participate in our economy. Yet too many workers, consumers and entrepreneurs from low-income communities and communities of color are being underserved by our financial system,” said Congressman Beyer, Chairman of the Joint Economic Committee. “Barriers to full financial inclusion—like banking deserts and predatory lending practices—harm not only the marginalized communities that are directly affected, they also cause economy-wide losses by exacerbating racial and wealth inequality. The body of evidence shows that ensuring all workers and families can fully participate in the economy expands economic activity and ensures economic growth is stronger, stable and more broad-based.”

“Low-income communities and communities of color have been burned over and over by our financial system, so it’s no wonder they don’t trust banks and face huge barriers to opening a bank account, cashing a paycheck, and applying for a loan,” said Senator Brown, Chairman of the Senate Banking, Housing, and Urban Affairs Committee. “As we work to create a more inclusive and worker-focused economy, we must eliminate discrimination in our banking system, protect Americans from financial predators, and expand access to quality financial services for everyone.”

“This report underscores the ways in which our broken financial system disproportionately harms Black, Brown, and low-income communities,” said Senator Booker. “From strengthening the Community Reinvestment Act to extending consumer protections over the growing digital asset space, we are working to dismantle shameful policies that perpetuate racial inequality and the racial wealth gap. All Americans deserve to be served equally by financial institutions and to see their hard-earned money protected.”

“The first sentence of this report, ‘[a]ccess to banking and financial services is essential to economic mobility and opportunity for all Americans’ says it all,” said Darrick Hamilton, PhD., Henry Cohen University Professor of Economics and Urban Policy, and Founding Director of the Institute on Race, Power and Political Economy at The New School. “With America’s dramatic and persistent wealth divide and nearly 40 percent of Black Americans unbanked or underbanked, decentralized private finance and fintech have never been enough. This report proposes direct actions in the form of public banking, alternative credit assessment, and Baby Bonds or other down payment assistance to ensure universal and affordable access to capital, credit and account services. I applaud Chair Beyer and members of the Joint Economic Committee for their clarity and blueprint forward.”

“Financial exclusion not only perpetuates and amplifies preexisting disparities, but it prevents other efforts to redress inequality from being as effective as they could be, said Carlos Fernando Avenancio-León, Assistant Professor of Finance at the Rady School of Management University of California—San Diego. “Efforts to make housing and education more affordable, or to close the gap in entrepreneurship, to name a few, will be hampered if there are disparities in who accesses capital and financial services, or severe restrictions as to how and at what cost that access can be achieved. But barriers to financial inclusion can be torn down. With the right disposition, assessment of risk can be improved, predatory practices can be tackled, and different, more equitable efforts of financing can be devised.”     

“Big banks have a long history of preying on communities of color with discriminatory and extractive practices," said Saqib Bhatti, Co-Executive Director of the Action Center on Race and the Economy. "In the past, they have targeted Black and brown communities with racist exclusion through practices like redlining and the creation of banking deserts. Now we are seeing a trend towards predatory inclusion, where Wall Street is targeting the same communities with risky and unregulated fintech products. We need lawmakers to hold banks accountable and compel them to provide high-quality, safe, and affordable financial services to all people."