One thing is clear after multiple rounds of pandemic-related stimulus payments: having a bank account helps deliver the money faster.
People who provided current bank account information to the IRS were among the first to receive direct deposit payments, which began arriving a year ago this month. Although glitches prevented some people with direct-deposit information on file with the IRS from getting their payments right away, electronic delivery decreased wait times exponentially. Direct deposit easily beat receiving a mailed check or prepaid debit card, which, with the slowdowns in the U.S. Postal Service, further increased the possibility of a delay.
Millions of Americans conduct their day-to-day financial business outside the banking system, leaving many to be preyed upon by payday-loan companies or rent-to-own establishments. Or they end up paying unnecessary fees to cash checks.
For decades, various government agencies have struggled to persuade the most economically vulnerable households to open bank accounts. Nearly 95 percent of U.S. households — about 124 million — have either a bank or credit union account, according to thelatest “How America Banks” report by the Federal Deposit Insurance Corporation (FDIC).
But the other 7.1 million households don’t have bank accounts. Lower-income and minority populations are disproportionately represented among these unbanked households. Nearly 14 percent of Black and 12 percent of Hispanic households are unbanked, compared with 2.5 percent of White households,according to the report.
Given the economic and social disruptions caused by the pandemic, being able to conduct your financial business electronically is paramount.
“The pandemic is also presenting particular challenges to households that rely on paper instruments to conduct financial transactions; that need or want to visit bank branches; that do not have an adequate savings cushion; or that do not have access to responsible, affordable credit,” the FDIC report said.
Then there is the stimulus money. There is a population of people the government is trying to reach. They don’t receive federal benefits and typically don’t file a tax return. And many are unbanked, which means if and when the IRS finally gets a tax return for them to send a payment, the agency will have to mail them a check or prepaid debit card.
To make it easier for these households to get their stimulus funds, the FDIC has launched a public awareness campaign — #GetBanked — to persuade unbanked individuals of the benefits of having a bank account.
The campaign will run in Atlanta and Houston, where the FDIC says its research finds a disproportionately higher percentage of unbanked Black and Hispanic households.
This summer, more stimulus money is slated to be distributed by the IRS in the form of advance child tax credit payments. Having a bank account will speed up the payments.
President Biden’s $1.9 trillion covid-related aid includes a substantial increase to the Child Tax Credit, which for the 2021 tax year expands to a fully refundable $3,600 for children 5 and younger and $3,000 for those ages 6 to 17.
The payments are slated to begin in July. The money is an advance, amounting to roughly half of the tax credit parents can claim when they file their federal returns next year. Having a bank account could mean fewer fees for people who need every dollar delivered to them by the IRS.
The administration wants to ensure unbanked households can get these supersized payments by direct deposit in time for the start of the summertime payments, said Leonard Chanin, deputy to the chairman for consumer protection and innovation at the FDIC.
“When you look more closely at which families are unbanked, the evidence shows a disturbing disparity,” Chanin said during a conference call about the #GetBanked initiative. “Simply stated, we have to do better.”
When asked, about half of unbanked households said they didn’t have an account because they didn’t believe they had enough money to meet minimum balance requirements. Others said they didn’t trust the financial institutions, Chanin said.
As part of the media campaign starting this week, the FDIC pointed to efforts to create no-cost or low-cost (as little as $5 a month) banking accounts for people afraid that fees and other charges would create a financial burden. The accounts, offered at 75 banks and credit unions under a national initiative called “Bank On,” are designed especially for the unbanked. People can open an account for $25 or less. Most importantly, with this type of account, overdraft or non-sufficient funds fees are not allowed. Transactions are declined if the funds are not in the account.
The national Bank On program is run by Cities for Financial Empowerment Fund, which points out that in many states, check cashing fees can be as much as 2.5 percent of the check amount. So, cashing a $5,600 stimulus check for a family of four in the latest round of relief (married couple with two dependents) would mean $140 in fees.
You can learn about the accounts and the campaign by going to fdic.gov/getbanked. On the site, people can search for participating credit unions and banks offering the Bank On accounts.
“It really is an overlap between communities that are unbanked and those who are eligible for any federal financial assistance,” said Elizabeth Ortiz, the FDIC’s deputy director for consumer and community affairs in the division of depositor and consumer protection. “That also means there’s a disconnect when you want to give people the money they need quickly and safely.”