Do you remember the last time you got an overdraft fee from your bank? Maybe you overestimated how much was in your account while standing in line at the checkout counter. Or in a fix, you made a payment you knew you couldn’t afford.
he FAIR program, offered in partnership with Guaranty Bank, is one solution. Designed by Prepare + Prosper to help individuals transact affordably and safely, build savings and credit, and rid themselves of high-cost fees and interest from predatory financial products and services, the program has been a godsend for individuals like Ms.Jewelean Jackson. One of fifty participants currently testing the program before a full rollout, FAIR has offered her a path back into the mainstream banking sector, which she described as “extremely intimidating, threatening, and unfriendly.”
According to a 2013 Pew Charitable Trusts study, one in ten bank account holders have “paid at least one overdraft penalty fee after using their debit card.” The median size of the transactions that led to an overdraft fee? Twenty-four dollars. The median fee assessed? Thirty-four dollars. The same study estimates a 17,000 percent annual percentage rate for this small “loan.”
While more than half of account holders who incur overdraft fees are able to pay them in three days, for others, the cost of this financial misstep can have longer lasting consequences. Ms. Jackson, a long time Northside resident who recently enrolled in FAIR, knows what it’s like when banks pile fees on top of fees for a single overdraft.
“Life is full of ups and downs, twists and turns, and one of those things happens financially and it can snowball. You get one overdraft and you end up owing $400!”
Practices such as this have long driven many low-income individuals from the formal banking sector—either willingly or through forced account closures—into the predatory arms of the informal banking sector. Here, with less regulations, consumers incur high-cost fees and interest rates for services like check cashing and payday loans. According to Federal Deposit Insurance Corporation (FDIC) data, more than 250,000 households in the Twin Cities, including approximately one-half of all Black and Latinx households, either do not have a bank account or are forced to use these costly services. With this in mind, there is a dire need in the Twin Cities for affordable banking services for the unbanked.
ccording to Stacy Opitz, marketing and communications director at Prepare + Prosper, resources such as this are crucial at a time when the “opportunity gap and the inclusion gap are being left out of the national conversation.” Communities of color and low-income individuals bear the brunt of this exclusion through reduced opportunities for wealth building and financial health.
Aside from finding a group of people who Ms. Jackson feels she can trust and is non-judgemental, “whether they’ve been there or not,” Ms. Jackson receives a financial coach and insight into her monthly spending that helps her plan better. For Ms. Jackson, who lost her home to foreclosure in 2005 after twenty-one years as a homeowner, FAIR has helped her begin to feel financially secure again. So much so that she recruited her daughter into the program.
“Part of parenting is you want your children to do it easier, make it bigger, and that’s part of your legacy. At age twenty-six, do you know how much further ahead she’s going to be? Even at this point, she’s farther ahead than I was at that age.”
Tawanna Black, executive director of Northside Funders Group, whose mission is to change the way philanthropy works in North Minneapolis, understands the need to begin thinking nontraditionally about both banking and wealth building. She raises important questions that build towards a more inclusive discussion about what solutions look like: “How can banks be more comprehensive in their thinking about how they serve low-income communities? More than just how you open yourself up to people opening bank accounts, but also how you build wealth in communities, how you make your products and services more accessible, how your lending services lead to people being unbanked or banked.”
“How has history contributed to the state of affairs today, and what’s the responsibility for banks to take ownership in those dynamics?”
— TAWANNA BLACK
There are many barriers to consider when answering these questions. Among them, how low-income wages affect money management, lack of knowledge about available financial resources, the impact of intergenerational poverty on education about wealth building, and the actual lack of physical banks in many low-income neighborhoods. Addressing this pressing issue, as Tawanna notes, must begin with conversations.
“We need more things that lift up the narrative of what resources are available so more resources can flow to those organizations and the people who need them.”
— TAWANNA BLACK
Sponsored by GREATER MSP and the Bush Foundation. Presented by the Strommen Center for Meaningful Work at Augsburg College in association with Minnesota Public Radio.
Story created in partnership with the Strommen Center for Meaningful Work at Augsburg College.