Alternative Financial Services Not So “Alternative” Anymore

Recently the FDIC released the “2011 National Survey of Unbanked and Underbanked Households.”  Its findings were somewhat surprising.  It showed that in the U.S. 28.3%, more than 1 in 4, households are unbanked or underbanked.  That is not the really surprising part though.  The really surprising part is that 25% of households have used alternative financial services in the past year, and 12% of all households have used alternative financial services in the past 30 days.  These services include payday loans, pawn shops, and rent-to-own establishment.  Keep in mind that to get a payday advance loan one must have an active checking account.


While 17million adults are under or unbanked, another 51 million are using alternative financial services despite bank access.  What does this say about the U.S. Banking system as a whole and so-called “alternative” financial services?  What is says it this.  While banks are not in danger of extinction, they certainly are not providing the affordable services Americans need.  The U.S. population has realized it has choices and they are taking advantage.  This migration from traditional bank services has resulted in once alternative financial services actually morphing into what are now becoming main stream financial services.


At what cost does this metamorphosis come?  Could it be that banks are pushing Americans to these other options, often times to their financial ruin?  Short-term credit solutions are often times all but non-existent in the banking industry.  If financial commitments come due before the next payday, consumers are going to go where they can get the quickest results for the least amount of money.  Sure, banks often offer overdraft privileges, but the immediate cost from fees due to this is astronomical.  While fees from payday loans may end up being just as much, they are not immediate, and there is a chance of avoiding them if the loan can really be paid off safely with the next pay check.


Why would you incur fees on the front end if you have a choice with another funding source?  If the bank fees are definitely going to make them worse off, then they are going to choose another source, and if that source happens to be a payday advance, at least they have a shot at making the money some way before they have to pay it back and avoiding fees.    It has become evident, especially to the payday lending industry, that alternative financial services are not necessarily so alternative anymore.

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