Thursday, September 2, 2010

New Treasury Attempt to Track the Money of the Unbanked Millions

Today, the  the Treasury announced that it will launch a new pilot program to capitalize on tax refund season for unbanked and underbanked Americans. The pilot will deliver targeted offers to certain low and moderate income individuals to sign up for new accounts with debit card access at tax time in order to receive their refunds through direct deposit. It will also test offering accounts that can be used year-round in the future to deposit other sources of income, store money safely, make purchases, pay bills, withdraw cash, and build savings.

“Far too often, unbanked and underbanked Americans are forced to turn to high-cost alternative financial products – such as check-cashing and other services – that take a big bite out of the savings of those who can least afford it,” said Michael S. Barr, Assistant Treasury Secretary for Financial Institutions. “For many individuals, a tax refund is the single largest payment that they will receive each year. That’s why tax season is a great opportunity to deliver safe, low-cost financial products to the unbanked and underbanked that will help those Americans build stronger foundations for their financial futures.”

The pilot is expected to launch during next year’s tax return filing season. Treasury will reach out to eligible taxpayers in early 2011 through two methods:

· Direct Mail. Treasury will mail information about how to sign up for the new accounts to low and moderate income individuals who have received paper check refunds in prior years or who otherwise have not provided bank account information to Treasury.

· Payroll Outreach. Treasury will partner with the private sector to insert offers to enroll in the pilot into the paychecks and paystubs of select individuals who are not currently using direct deposit to receive their tax refunds.
According to the Federal Deposit Insurance Corporation’s (FDIC) 2009 National Survey of Unbanked and Underbanked Households, there are an estimated 9 million households without bank accounts. Another 21 million households are underbanked, meaning that they have a bank account, but these accounts do not fully meet their needs, and they still rely on check cashing services or other financial service providers.
The unbanked are disproportionally low and moderate income. According to the FDIC’s 2009 National Survey, a person making $30,000 or less is more than 7 times as likely to be unbanked as someone making $50,000 or more.

1 comment:

  1. Many are unbanked I would presume since they do not have the skills to manage a check book and others do so to avoid documentation of their "under-the-table" income. My guess is that most that don't use banks and prefer alternative financial institutions, like check cashing stores, do so for good reason.

    A guy that works on my sprinkler system from time to time, cashes my checks at the liquor store. When I was checking my statement I noticed this and thought maybe he was an alcholic. He later told me that he cashes them there to avoid putting the money into the bank and having to pay taxes on it. Makes sense when you realize that the check store charges 3% and the government charges at least 25% (FICA+FIT).

    People on government assistance also like to avoid the banks so that they can hide their side income which might invalidate or lessen their benefits.

    The bottom line is, these people are probably financially smarter then the average progressive that is looking to help them.