Bank Accounts
State Laws Can Lead to More Bank Accounts Among Low-Income Minority Households
According to a new research published in the Journal of Human Resources, State laws requiring banks to offer low-cost accounts to low-income people and limiting check-cashing fees have increased the number of low-income minority households with bank accounts. As a by-side effect, laws limiting check-cashing fee caps have a more immediate impact than those requiring banks to offer low-cost accounts. "Governments and public interest groups are concerned about people who do not have bank accounts, and who are less likely than people who own bank accounts to own a home, to get a loan etc.," according to the researcher, Ebonya Washington, Ph.D., of Yale University’s Departments of Economics and Political Science and a faculty research fellow with the National Bureau of Economics. "If you don’t have access to mainstream financial centers, it makes it harder to secure the American dream and to be financially sound." During the past 20 years, the federal government and state governments have implemented policies aimed urge low-income households to open bank savings account. Six states currently have "lifeline banking" legislation obligating banks to offer low-cost accounts to low-income persons. Over 20 states have laws capping the fees check-cashing outlets and pawnshops can charge to cash checks.To estimate the impact of the state laws on bank-account ownership, E. Washington analyzed demographic and banking-status data for more than 105,000 low-income households in 45 states and the District of Columbia. All of the households participated in the federal government’s Survey of Income and Program Participation between 1985 and 2000. She compared bank-account ownership in states with and without the laws, and before and after the said laws were enacted. The results show that "binding" price cap laws—those that limit fees to 2 percent of a check’s face value—were associated with a 4.5 percentage point increase in the number of Black and Hispanic households with checking accounts after about one year. Lifeline banking legislation was associated with a 4.2 percentage point rise in the number of low-income minority households with bank accounts, but only after a three-year lag. "Check-cashing fee cap legislation is not necessarily designed to have any effect on bank accounts, but you can see how it might if cashing a check at a check casher is a substitute for cashing it at a bank," Washington asserts. "If you cap fees at check cashers, people might start using check cashers more." "If we’re interested in increasing the number of people who have bank accounts, we might think about the need to get the word out more about this type of legislation and/or about alternative means of achieving that end," she says. According to the analysis 37 percent of the low-income households did not have bank accounts in the year 2000. Compared with households that hold transaction bank accounts, households without bank accounts were less likely to own a car or house, more likely to receive transfer income (such as government welfare payments), and less likely to be headed by married couples. Anyway, there's no current prediction that getting people to open bank accounts will narrow those gaps.
The study results can be found in the Winter 2006 issue of the Journal of Human Resources, published by the University of Wisconsin Press. Immediate Release took place
February 8, 2006
Contact:
Dr. Ebonya Washington
203-432-9901
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