The Unbanking Of America: How the New Middle Class Survives

by Lisa Servon

“[A] startling and absorbing exposé . . . Required reading for fans of muckraking authors like Barbara Ehrenreich.”— Publishers Weekly, starred review
 
“Exceptional . . . thorough, and even gut-wrenching. A significant contribution.”— American Prospect
 
Why Americans are fleeing our broken banking system in growing numbers, and how alternatives are rushing in to do what banks once did
 
What do an undocumented immigrant in the South Bronx, a high-net-worth entrepreneur, and a twenty-something graduate student have in common? All three are victims of our dysfunctional mainstream bank and credit system. Nearly half of all Americans live from paycheck to paycheck, and income volatility has doubled over the past thirty years. Banks, with their high monthly fees and overdraft charges, are gouging their lower- and middle-income customers while serving only the wealthiest Americans.
            Lisa Servon delivers a stunning indictment of America’s banks, together with eye-opening dispatches from inside a range of banking alternatives that have sprung up to fill the void. She works as a teller at RiteCheck, a check-cashing business in the South Bronx, and as a payday lender in Oakland. She looks closely at the workings of a tanda, an informal lending club. And she delivers engaging, hopeful portraits of the entrepreneurs reacting to the unbanking of America by designing systems to creatively serve many of us.

Genres: Nonfiction, Economics, Finance, Business, Politics, Social Issues, Money

250 pages, Paperback

First published January 10, 2017

Reviews

[Andrew Smith · Rating 4 out of 5]

As someone who spent his whole working life in the employ of a large retail bank in the UK, the title of this book intrigued me. How could anyone considered to be middle class (almost regardless of the precise definition) survive without using a bank? Well, in this book Lisa Servon (Professor of Urban Policyan at Milano School of International Affairs) delves deep into the issues confronting potential bank customers in America today. She starts by stating that there are, in essence, three avenues to basic banking services:

- Banks
- Alternative financial services providers (e.g. check cashers, payday loan shops and pawn shops)
- Informal set-ups (e.g. via friends, family and work colleagues)

Each of the above is explored in some detail, with the advantages and disadvantages of each presented in a clear, no-nonsense way. Indeed, she even spent time working as a teller in a South Bronx check casher branch and as a lender in a payday loan shop. Both were eye opening experiences!

I did notice some interesting differences between mainstream retail banking in the UK versus the US. Some examples:

1. Bank charges have certainly come under the microscope in the UK but I’m convinced customers get a much better deal here. The charging policies and shady practices adopted by large banks in the US (e.g. treatment of overdrafts, sequencing debit transactions to maximise their ability to charge and even charging up to $25 for a replacement debit card) far outstrips anything I’ve experienced or heard about in this country.
2. It feels to me that the use of checks (cheques in the UK) is more predominant in the US. Here, electronic payments have all but made cheque issuance redundant. This difference helps to account for the widespread presence of check casher branches in the US.
3. The availability of basic bank accounts in the UK, allied to the prevalence of electronic payments and the direct debit system should mean that there is no need for anyone to look outside banks for access to standard services. That said, there remains circa one million people in the UK who don’t have a bank account of any type.

An interesting point that is made throughout this book is that banks really only want to have relationships with relatively well off people. Banking for people on the margins of financial security can be very expensive and, indeed, some can be excluded altogether due active credit scoring policies. Another strong message is that the banks generally provide a depersonalised service offering, this is much in contrast to the check casher and payday loan shop experience where customers tend to be well known to staff. In fact, customers using the non-bank services even tended to bring gifts to staff, tip them following transactions and ask after the welfare of favoured tellers.

Another key point is that many people who have bank accounts also use check casher and payday loan facilities. So why would they do this?

Check Casher: The short answer is because of instant access to funds rather than having to wait days for a cheque to ‘clear’. There is an up-front cost for this but when the cash is needed to buy food or other necessary good or to pay workers (in the case of small businesses) this is a necessary expenditure.

Payday Loan: There are several reasons but the expense of overdrafts and lack of access to cheaper loans both play a part.

The whole credit scoring issue is a big deal and once someone is driven below a certain score (for a host of potential reasons) they become tagged as ‘subprime’ and lending becomes harder to access and interest rates rise to account for the perceived additional risk.

I hadn’t realised that payday loans have a hidden trap. The facility is short-term and a one-off fee is payable upon repayment (pay day), but many customers can’t afford to carry the whole cost of repayment in such a short space of time and are forced to take out another loan to cover the shortfall. This can become an extended, and very expensive, process. Often these loans are used to pay for emergencies such as medical needs or a car repair and this highlights the plight of many Americans living close to the ‘breadline’. Another interesting fact is that even though payday loans are illegal in some states, there exist more payday loan stores in America than the combined total of McDonalds and Starbucks outlets!

At the end of the book there are some sensible recommendations as to the way forward for a country whose banks increasingly cater only for the well-off, leaving everyone else to settle for more expensive ways of resolving their financial services needs. Despite some differences in systems and policies, there are a lot of parallels with the UK here. I found this to be a thoroughly researched and enlightening piece of work.

My thanks to Houghton Mifflin Harcourt and NetGalley for providing an early copy of this book in exchange for an honest review.

[The Pfaeffle Journal (Diane) · Rating 4 out of 5]

The Unbanking of America: How the New Middle Class Survives was very interesting, I like many people look at check cashing and payday loan operations as near criminal. Lisa Servon, begs to differ, she takes us on a imitate look at how these companies function with the communities they serve. We have been led to believe that check cashing and payday loan stores are just a step above mob loan sharks. The author paints a totally different picture of how these operations function within their communities. As with any business there are bad actors but on the whole, these banking alternatives service a large group of people.

Servon in researching the writing this book actually worked for several of these companies, she was able to learn first hand how and why people use these entities. I can see that bank could be a hindrance to accessing your money, if you live paycheck to paycheck. Basically the author says the check cashing and payday loan companies really serve the emerging middle class better that banks as they are very straight forward in the fees they charge, they offer immediate access to one's money, they will lend money that people may not otherwise have access too.

The book is about is a quick read, well worth the time.

This review was originally posted on The Pfaeffle Journal

[Jen · Rating 5 out of 5]

Wow. That's all I have to say. Banks and credit card companies are possibly more evil than payday lenders and check cashiers, despite what the media says. Who knew?

Well, if you believe the media, I have a bridge to sell you. But I digress.

Now, just to be fair, the author isn't saying banks and credit card companies are evil, just that they are no longer customer oriented and more profit oriented. Which in my book, IS evil, especially when the profits come from screwing over customers, especially those who can ill afford it. Seriously, if a check bounces or an account is overdrafted because of a lack of funds, charging the person $40 isn't going to help them at all! And I'm sorry, it shouldn't cost a financial institution making billions of dollars a year $40 to deal with an overdraft/bounced check. Not to mention a lot of banks rig it so there are more charges and charge fees that if I were to charge them to a friend borrowing money from me would be decried as usury and I would be locked up so fast my head would spin!

But I'm not a fat cat bank. So yeah, banks and credit card companies are evil.

They are also huge, part of the status quo and unable/willing to see that by screwing over too many people, innovators will start new businesses that are smaller and willing and able to meet the customers needs without screwing them over.

So there is hope. It's not coming from the Government, which backs the banks as "too big to fail", basically telling the banks, "Go ahead, do whatever you want, cuz we won't stop you, we can't." Which is a big bunch of Horse Hockey. But whatever. Small businesses, rise up! Stick it to the banks! Customers, take your money where you are a name and valued, not just seen as a dollar sign on a lollipop.

This book is fantastic. Five stars and should be made necessary reading for everyone, especially high schoolers. College debt is discussed and is definitely something someone going to college needs to think about. Read this book!

My thanks to NetGalley and Houghton Mifflin Harcourt for an eARC copy of this book to read and review.

[Dana Sweeney · Rating 3 out of 5]

I’m glad I read this and I feel like a learned a lot. Sort of in the tradition of Barbara Ehrenreich’s “Nickeled and Dimed,” Servon here takes jobs in payday and check cashing businesses to better understand who their clients are. She reports back in those experiences and also interviews a lot of people to gain insight into economies of use to people in modern America who do not use banks. Essentially, it’s a broad-ranging survey of how modern American consumer finance services fail to actually serve most people in any meaningful way. In offering that view, Servon also pushes back against many conventional wisdoms held by consumer advocates. I think the most concise thesis for the project in the text reads as follows:

“Framing the problem as banked versus unbanked has helped spotlight problems of financial exclusion, but it has also placed a value judgement on some people’s financial decisions without understanding their situations, implying that the un- and underbanked are somehow deficient. This understanding of the problem also tacitly affirms that banks are the good guys. They’re not. This paradigm has outlived it’s useful life. It’s time to move on.”

Lots of Servon’s analysis is sharp and smart. I learned a lot from and was really persuaded by her critique of how fee structures have evolved at major banks, and by her view that consumer advocates have erroneous assumptions about bank usage & do not spend enough time engaging with and understanding alternative economies. The abbreviated history of bank consolidation as the result of bad banking policy was also enlightening. There’s lots of good stuff. My copy is well-highlighted and dog-eared.

Frankly, though, I am rating lower than I otherwise would have because I am really unpersuaded by Servon’s treatment of payday lenders. Her criticism that people turn to payday lenders because mainstream banks have completely abandoned / screwed over people who are not already financially stable is spot on. Her point that consumer advocates righteously rushing to the payday & title loan space results in letting banks off the hook is well-taken, and something I will think a lot about. But in making these points, I found her analysis much too credulous to payday lenders themselves. The book reports that most payday lenders do not have a means of collecting outstanding debts and let them go. I have been to small claims courts here in Alabama where 40% of the docket is payday lenders squeezing small amounts of money from people who can’t afford lawyers or time off work for court dates. The book neutrally reports that payday executives fret over loan rollovers, when in fact this is where the industry’s greatest profitability lies. The book reports that most payday lenders allow installment repayment plans. Not here, anyways.

My perspective here is surely skewed by my limited vantage point in Alabama (Servon reports from her time working for a lender in California, where laws and practices are somewhat different). I don’t want my frustration with the one chapter on payday lending to tank my relationship to the rest of the text. And, Servon does temper / qualify her rosier take on payday loans with a shorter section on her experiences volunteering for the Virginia Poverty Law Center’s Predatory Loan Help Hotline. But it was a really frustrating part of the book for me. Surely, there must be a way for us to sharply criticize mainstream banks for abandoning working people without lifting up lenders who charge 450+ percent APR on loans?

Overall, a good read. I am going to adopt some of the really smart reframes that Servon identifies re: un- and underbanked rhetorics. I’m gonna reflect a lot on the scrutiny that “alternative” lenders relieve banks from facing. And I’m going to think about the really tectonic shifts in banking that Servon documents here, that point toward a rupture and new possibilities of community economies. Good read. One really frustrating chapter, but otherwise informative, thoughtful, and well-written.

[Biblio Files (takingadayoff) · Rating 5 out of 5]

Any thoughts on payday loan stores? I had it all figured out, that they are a scourge that should be eliminated immediately. Then I read The Unbanking of America, and I had to change my mind. First off, Lisa Servon differentiates the payday loan providers from the check cashing and money wiring services. In many states, payday loans are illegal and the storefront stores that cash checks also transfer funds, print money orders, and do other legitimate services for a clearly posted fee. Many people would rather deal with a neighborhood storefront that doesn't require signing an unreadable contract to open an account. Many banks don't even want the hassle of customers who don't keep huge balances. As for the payday loans, they really are a different matter, but when there are so many people only a paycheck away from financial disaster, a quick if expensive loan is one option. Not a good one, and it's extremely risky since so many follow up one loan with another and another, but if the rent is due or your heat is about to be turned off, you do what you can. Good book, made me think about the subject in a whole new way.

[Mary Little · Rating 5 out of 5]

It's not often you find a book that educates while delivering a strong, personal narrative. The author shows how the banking industry has become a haven for the wealthy and through her own personal experiences working at a check cashier and payday lender introduces us to middle class Americans who find it cheaper and easier to pay fees for check cashing rather than open up a checking account.
Great read. Made me angry and helped me think. Gave me great ideas for how to improve my own banking situation.

[Ingrid Gillies · Rating 4 out of 5]

I think I liked it so much bc every other word was CFPB. But also does anyone else get anxious when reading nonfiction that they won’t remember what they Read, and therefore reading nonfiction is not worthwhile

[Greg Strandberg · Rating 4 out of 5]

I got this book from the library and read about a third of it.

What’s interesting about Servon’s approach is that she actually got a job as a teller at RiteCheck, which is a check cashing service in the South Bronx.

“Before working as a teller, I assumed that mainstream and alternative financial services were separate,” she writes in the introduction to the book. “I soon learned that the reality is much more complicated.”

And so the book begins its course, charting how the banks consolidated, began their aggressive marketing, and started giving credit to riskier groups.

For instance, we learn that:

“The payday lending industry has grown from “$10 billion in 2001 to nearly $30 billion in 2012.” (p xv)

“In 2014, Americans paid nearly $32 billion in overdraft fees, and $6 billion of it went to the three biggest banks (Chase, Bank of America, and Wells Fargo).” (p 31)

Lots of good information here.

[Athan Tolis · Rating 5 out of 5]

The Unbanking of America is better than a treatise on US consumer financial services has any right to be.

Author Lisa Servon, a university professor, has dedicated a large part of her life to this book, exploring “unbanked” America from every possible aspect: the data (which she found inadequate), the literature (often straight from the author, such as Sudhir Venkatesh of Freakonomics fame), the history of the relevant regulation (again, under the guidance of experts), a survey of fintech initiatives (straight from the founders) and, most significantly, the people: the unbanked themselves.

For this last bit, nothing less than proper fieldwork would do. The author got two separate full-time jobs serving underbanked Americans and volunteered for a third one: as a teller behind the bulletproof counter at a Brooklyn branch of Rite Check, as a payday loan officer in Oakland with Check Center and as a helpline operator from her mobile phone for the Predatory Loan Help Hotline of the Virginia Poverty Law Center. Even her research assistant was enlisted, as a saver with a tanda in South Bronx (an unofficial Rotating Savings and Credit Association).

My interpretation of her findings is that not only have the banks moved away from America’s middle class, but the definition of what it is to be a middle class American has shifted as well.

So, on one hand the banks’ business model toward serving the less affluent population’s banking needs has been repurposed to work through (often hidden or, even worse, unfairly calculated) fees for overdrafts. And following Bill Clinton’s (he’s never mentioned by name) 1994 repeal of interstate banking restrictions, a large wave of mergers has swallowed most of the small banks that used to serve neighborhoods, to the point that the author now believes that cash checking services, which advertise their fees as clearly as a fast-food shop, rather than bury them in fifty page agreements, offer a better deal to the masses.

Moreover, regulation on lending, especially in the shape of the, generally speaking, well-intended, 2009 CARD act, has made it unprofitable for banks to lend to the less affluent, with the result that banks have totally abandoned this segment of the market.

But there is a more sinister side to this, and it’s that an enormous proportion of the US population is less financially stable than its parents’ generation. Special emphasis (a whole chapter) is given to the “millennials” and the book avoids strident claims, but the point is driven home through a barrage of facts, statistics and personal testimonies that almost a hundred million Americans are merely “making do” and are unable to live with the uncertainty inherent in waiting for a check to be cashed by their mainstream bank, for instance.

This is not a story of despair however. The author explores alternative banking arrangements such as Rotating Savings Corporations and Associations, visits with private pioneers in providing financial services to the “precariat” and offers a series of proposals for government programs, including for example a return to a basic account the Post Office used to offer to savers until 1967.

So the book left me optimistic about the future of the unbanked; or rather, it left me optimistic that their banking needs will soon no longer feature among their higher sources of stress.

One issue at a time!

[Trisha · Rating 3 out of 5]

"The consumer financial-services system is broken."

This was a very depressing but also eye-opening story about the rise and fall of the American Middle Class and how the banking services have changed - not for the consumer but to line the pockets of the bankers. It wasn't too surprising who is getting rich, I kind of already knew the richer are just getting richer while the millenials are just trying to stay afloat. But I didn't know just how slow the income has climbed verses the cost of living. Even medical expenses are just devastating and the medical coverage is NOT what it was for the boomers. It's a good book but all seems odd to read in the midst of this pandemic as we try to figure out this new world of social distancing while also not isolating ourselves. I think we'll see banking as just one of the many systems that also have to change to keep up.

Like others, I did think a huge failing of this book was Community Credit Unions. I flipped to one as soon as the industry started to get fee happy (like she talks about in the book) and I think they are very good at keeping little to no fees, lending to those in the community - but I can also see that they are missing out on the ones those pay day loans are helping.

[Rachel Blakeman · Rating 4 out of 5]

This is really a 3.5 rating. I learned of this book when the author was interviewed on Fresh Air. The first half of the book is great, chronicling her time working in the alternative financial services market. It was really insightful to learn why people, acting as rational actors, use check cashers and payday lenders. Also glad to see she covered immigrant communities' financial practices.

I usually criticize books for not offering solutions to the problems they highlight. However it was exactly that section that knocked it down from a true 4-star rating for me. The writing was not nearly as good and felt a bit advertorial for the services she was featuring.

All in all I was glad to read it but it's not perfect.

[Ian Robertson · Rating 4 out of 5]

In 2000, Robert Putnam wrote Bowling Alone, which traced the decline of an integrated American society into one of segmented and stratified sub-societies. This book continues that vein by looking specifically at its impact on financial services.

According to Lisa Servon, a professor of city and regional planning at the University of Pennsylvania, "more than one million people with low incomes have been deemed ineligible for bank accounts" by the credit scoring system. For this and other reasons, about 8% of Americans unbanked, and another 20% underbanked. So where do they go? Where do they cash their paychecks, get loans, or transfer money? According to Servon, they use payday loan services, check cashing companies, and informal networks within their neighbourhoods - options that seem expensive - even foolish - to those who use regular banking services (which are also far more expensive than in years past), but they do so both out of necessity and because those alternative systems serve their needs well.

The Unbanking of America begins by tracing the divergent interests of the banking system and America's dwindling middle class. While banks strove for wealthier clients and higher margin business, a changing economy left a growing number of people with less stable or predictable income. For the banks, weeding out less profitable customers via the aforementioned ChexSystems credit scoring system proved to be a match made in capitalist heaven. It's hard not to see the systemic complicity as people become unbanked, but Servon provides just the facts along with explanations and context. Readers are left to draw their own conclusions about political implications; those on the right may applaud banks' business acumen and drive for profits, while those on the left may see it as a failure of markets.

Some explanation and context about the issue can be gleaned from magazine articles or academic journals, but it is the following chapters - the core of the book - where Servon really shines. She recounts in an easy-flowing, almost chatty style, her immersive experience working at several alternative financial service providers. Servon neither works 'under cover' nor shies away from on the record interviews of the companies' leaders and employees. The result is an objective and sympathetic portrayal of both the companies and their clients - a surprising and thought-provoking perspective that presents this segment of the financial services industry quite differently from the prevailing media and political characterizations, where companies are predatory and their clients irrational. Rather it is the banks that implicitly come across as predatory, essentially exiling a large swath of the population to a higher cost, but welcoming and service oriented alternative.

The Unbanking of America has much in common with another recent publication, JD Vance's Hillbilly Elegy, in that both are first person narratives about cultures and systems that are foreign to most. In both books, the insider's viewpoint and warm style gives so much more insight than any statistically driven narrative could. Highly recommended; a short, quick read that provides valuable perspective. One publishing note: in my Kindle version the footnotes were not linked, and I needed to scroll manually back and forth to use them - a serious error in today's digital world. Not a reflection on the author's fine work, but nonetheless unfortunate.

[Nathan · Rating 5 out of 5]

Lisa Servon’s timely new book, The Unbanking of America, explains how and why Americans are using “alternative financial service providers” to circumvent traditional banks. The how is told through her engaging first hand account of working at check cashers and retail payday loan establishments. Thy why is basically…half of America is broke, and millions of Americans do not have bank accounts.

When you have to pay your construction workers, but can not wait until the money is transferred into your bank account, you go to an alternative financial service provider like a check casher.
When your car breaks down, and the only way to get to work to get money to pay rent and your food for your kids, you take out a payday loan.

https://medium.com/@nrothstein/where-...

[Elaine Herdman- Colan · Rating 5 out of 5]

Excellent book for anyone studying or teaching Personal Finance. Lisa Servon first hand research describes why some of us use alternative banking options and how banks do not serve those struggling to financially survive. I do have one question for the author. Why did she write on page 174 " there's no reason why a standardized fact box can't replace the opaque technical language asterisks and fine print that typically accompany financial products" when the Schumer Box used by credit card companies has been in place prior to 2017 when this book was published. Maybe she was speaking about all financial products. Otherwise this book is worth the read and an eye opener as why the American banking system is failing many of it's citizens.

[David · Rating 3 out of 5]

I was drawn to this book by its title, cover picture (a jar of loose change will always get me to at least take a closer look) and its availability on my library's e-lending system.

It's not a polemic against major banks and credit unions (maybe more of a mild rebuke) so much as an insight into alternative financial systems (check cashing stores, payday lenders, tandras/ROSCAs, digital wallets and the like). This is the book's strength. Servon is an academic/researcher and she explains these alternatives very well. She helped me understand the value of these non-bank options to the financially distressed. Check cashers and payday lenders always seemed to me to be a complete ripoff of the poor but Servon illustrates their relative advantages to the customers they serve. (I didn't get the impression she was holding them out as morally or ethically superior, just better able or more willing to serve the poor.)

Servon also deserves credit for trying to find solutions to the lack of services (non-predatory or otherwise) for the growing population of people unserved by banks and credit unions. She highlighted some interesting developments in the last few chapters and seems genuinely concerned about the financially disadvantaged.

Servon's advantage as an academic/researcher is turned upside down when she tells individual stories or discusses financial facts, policy and regulation.

The individual stories lacked depth, context and a compelling voice. They should have either been condensed to their basic elements or expanded to draw the reader in more.

Here's a sample of some of her dry academic writing:

"Credit makes up about two-thirds of the resources the average household has to spend on immediate needs. During the financial crisis, commercial banks reduced credit limits by 25 percent overall and cut off many consumers completely. The Federal Reserve’s quarterly survey of senior loan officers in October 2008 found that 60 percent of banks had reduced credit card limits for subprime borrowers, and 25 percent had reduced limits for prime borrowers. For example, in the last quarter of 2008, one-fifth of credit card holders had at least one credit card account closed, including consumers with the best credit scores, and overall credit limits fell by a quarter from 2008 to 2009. And, as of 2012, people were paying higher interest rates—16 percent on average, and a quarter of all Americans were paying more than 20 percent interest on their credit card debt. In 2014, the national average interest rate on a credit card was just over 15 percent, with much higher interest rates for instant approval cards (28 percent) and cards for “bad credit” consumers (22.7 percent)."

This kind of information would have been easier to absorb in graphical form in the Notes section where I would have gladly ignored it.

Stylistic complaints aside, this is an informative book about a major industry that could face a sea change in the next decade.

[Ben Hamelin · Rating 3 out of 5]

An interesting account of alternative financial options, why they're used, who's using them, and a breaking of the stigma that surrounds some of these services (payday lenders, check cashers). Highlighting how corporate financial big banks have left behind many consumers (not to mention screwed them over), and also highlighting some newer players in the alternative finance sector. This was a fairly easy read, with some interesting facts and observations, I wouldn't strongly recommend it but if you're interested in this topic it's a must read.

[Shivesh · Rating 3 out of 5]

Unbanking is a term that is pregnant with meaning in the new America, where we have entered the beginnings of a post-capitalist state. Much like how Deconstructionism has overtaken the Post-modernist movement in the last century, capitalism as an ideology has been deconstructed into its component parts in this century. Now economic issues dominate the headlines and modern journalism has taken a turn toward long form sociological studies such as that contained in this book.

All things considered, it is an admirable survey, and one that has the feel of a longer scholarly work condensed into an easy to digest plebian work on the difficulties of the middle class in our society. It is mostly focused on the author’s brief time working in the field as a cashier in a check cashing place, which gives it the feel of an anthropological study. However, the long digressions into recent historical trends are hit or miss - real economic data is sometimes stretched to achieve sociological conclusions which are spotty at best. What I liked most at the chapters focused on how hard it is to advance and move up the social and financial strata of this increasingly hardened society. Those who have achieved or inherited the upper class do not easily want to subsidize those who are the working poor. It bodes poorly for all of us if the rest of society can’t follow success with success of their own.

The uneven narrative is broken up frequently by distracting side ruminations, which doesn’t work to keep our attention for long. By far the most interesting story of tandas (i.e. community savings and credit associations) and their utility as a shadow banking system - I imagine there are a lot more of those out there in defiance of a frequently crooked financial system that takes advantage of the middle class, the poor and those who do not know how to utilize it.

In the end, the author returns to a comfortable professorial life while her subjects toil away in a twisted workers’ paradise built by capitalism’s missing pieces. The working poor are the forgotten ones and they are further falling behind everywhere. It is a terrifying dystopia that is forming.

[Rt · Rating 5 out of 5]

The new middle class that Servon describes isn’t, really. That is, its members may have good incomes, but even if they do they lack significant savings or other wealth, and often job security as well, and thus they are vulnerable to sudden shocks. Servon talks to one man whose database of consumers with subprime credit scores included many with relatively high incomes, college degrees, and homes in their own names; seven years ago, the people in his database experienced a “destabilizing event”—job loss, health issue, car breakdown—every 87 days, but it’s down to every 30 days now. Americans are spending more than they earn because they’re earning less than they need to live. (I also didn’t know that as recently as 2012 data showed that women continue to pay more than men for credit cards.)

After the financial crisis, many more Americans dropped checking and savings accounts; banks don’t want people as customers unless they can provide expensive services or charge high fees to those people and so using a check cashing place can seem much more sensible—at least you know what the prices are instead of getting surprised by them, and you aren’t at risk of hundreds of dollars of overdraft fees. Banks may also deny people the ability to open accounts if there’s any history of overdrafts—more than one million people have been deemed ineligible for bank accounts because of new software tracking bounced checks etc. The idea of a checking account as an indicator of financial stability no longer makes sense, even though policymakers are still acting as if it did. Unless there are significant changes in banking, Servon contends, thinking of people as “underbanked” wrongly implies that they’re making bad choices. (Servon notes that regulators actually encouraged banks to rely more on fees to make themselves less vulnerable to interest rate shocks. Once banks saw how profitable overdraft and other fees were, however, they were hooked. And the average charge for overdrafts and ATM fees has shot up over the past decade.)

As for credit cards, deceptive practices and other problems made credit cards not a great idea for many people. Companies have severely dropped the limits for “risky” cardholders, down to $500 for the most risky. And when you have a lower limit, your use is a greater percentage of your available credit, which lowers your credit score. Over half of African-American middle-class households had at least one credit card cancelled, a lowered credit limit, or a denial of a credit card after the financial crisis. Servon also points out that many people who use payday loans with their huge interest rates have unused credit on their credit cards—but this makes sense to them because they don’t want to use up their last source of emergency credit, if something else happens. Plus, failure to repay a payday loan doesn’t decrease a consumer’s credit score, while failure to repay a credit card does. Servon concludes that it’s just not clear whether the benefits of payday loans outweigh the costs (but in the end discusses ways of getting cheaper financial services to the same borrowers). Compared to states that don’t ban payday lending stores, households in Georgia and North Carolina, which do, bounced more checks, filed more FTC complaints about debt collectors, and filed for bankruptcy more often. Colorado limited payday loans in certain ways, such as banning lump sum loans that have to be repaid in full; on average, payday loans in Colorado take only 4% of a borrower’s paycheck, and Colorado borrowers spent 42% less on loan fees and the number of rollovers—new loans used to pay off old—decreased by more than half.

Among other places, Servon worked at a check cashing place where people appreciated clarity and convenience—immediate money to pay the bills instead of waiting three or more days for a check to clear. This was important, among other things, to small employers who needed to pay their employees right away. Check cashers also prioritized customer service, which traditional banks no longer do. Servon also investigated informal savings schemes—tandas, where largely Latina women each put in a certain amount of money every week, and then every week one woman gets the others’ contributions—a way to force oneself to exercise savings discipline/avoid pressure from family and friends wanting to borrow cash on hand. Tanda bankers get tipped but they also have to make sure that the participants are reliable. The tanda banker Servon followed also made loans which didn’t bear interest but, when paid off, came with additional “gifts” of money (in true Viviana Zelizer fashion; just like the tanda payoffs themselves, this was a different “kind” of money that was earmarked for specific things). Tandas also have risks; Servon tells one story of a tanda in which the banker just ran off with the cash. And, of course, even successful tandas don’t build credit in the mainstream economy, so users remain more isolated form the formal economy than they perhaps could be.

Servon also has a chapter just about millennials, whose financial insecurity is, among other things, hampering their ability to build social capital—attending a friend’s wedding can mean financial strain for momths. Millennials feel they have to choose between retirement, a house, or kids—pick one. The problem, she reiterates, isn’t “underbanking”—it’s underfunding. “Most people have very good reasons for doing what they do with their money.” People need more stable incomes, and financial services can only be a small part of that, though she does write about various entrepreneurs trying to use digital services to reach people underserved by mainstream banks.

[Gabriella Hoffman · Rating 2 out of 5]

I tried reading with an open mind but when the book dabbled into endorsing government regulation, Keynesian economics, and hatred of the gig economy/independent contracting, the author lost me. Not to mention her praise of Elizabeth Warren as a supposed serious policymaker. Yikes.

When I heard the author speak at a fintech conference earlier this summer, she also referred to Hispanic Americans as Latinx. The book proved disappointing like her comments then.

Unfortunate. 2/5.

[Tim · Rating 5 out of 5]

Wow! Servon delivers so many insights into the ways we use money and ways to improve our choices. She asks real people real questions and delves into the choices they have and their decisions. She explores why we have so few choices and explains some ways to solve the underlying causes. If you only think "the poor" are suffering from income insecurity, you need to read this.

[Kari · Rating 4 out of 5]

Overall, I enjoyed her perspective and information. Parts of the book were a tad dry. And other parts were very biased. But I did enjoy tremendously her description of working in the check cashing and payday loan environments and the stories she was able to convey. Overall, I would recommend.

[Bob Croft · Rating 1 out of 5]

I run a janitorial firm in the Phoenix area. For better than 30 years, we've been based on small, usually owner-operated independent contractors for much of our small client work. They're straight, down to earth hard working folks, often immigrants or their children, trying to make a decent living for their families. Good people.
I've noticed that quite a number of them use check cashing firms to cash their monthly payments; it's seemed to me, repeatedly, that the couple of points charged, plus the time to visit the check cashing shop, has (from my perspective) got to be a drag on time and wealth. Not wanting to pry, or embarrass, my folks, I've never asked - just assumed that they've had some sort of problem dealing with banks, and are shut out of the system.
Servon's book explores the positive aspects of check cashing firms - transparent fees, immediate cash (no holds until the deposit clears), fees and policies posted in clear language, convenient locations and hours, personalized service. If one also factors in an occasional bounced check charge from a bank, and how often we're really ticked off at lack of service and responsiveness from our own banks, the check cashing firm seems a not irrational choice.
That perspective is what I'd seen in a review of the book, and why I picked it up.
BUT: the author has a heck of a chip on her shoulder against the conventional banking system, and a remarkable lack of knowledge of its history. And quite a bias in favor of the regulators. And she's sloppy with her stats.
Couple examples, the last point first:
"In a study of US financial health, CFSI found that 57% of Americans - 138 million people - are struggling financially..." p.166. That would indicate a much smaller population of people in this country than the census sees to find.
"Once banks started making loans in the 1920s, they dealt with only the well-to-do and the well-connected." p.65. Not to mention lots of small farmers, and so on...
On interest caps: "Interest caps are more than numbers: they are reflections of society's collective judgment about moral and ethical behavior..." p.65...Or maybe a reflection of what the folks in the Legislature thought would get them re-elected.
"Historically they (African Americans) have faced discrimination when attempting to use their charge cards..." p.66 Never seen this in practice, or referenced anywhere else. Servon sites no source.
"...unskilled jobs with wages dependent on the business cycle..." p.70 It is the high end paychecks, heavily dependent on commissions, bonuses, and so on, that fluctuate with the business cycle.
"We've seen that alternative and informal financial services have emerged and grown to fill needs unmet by the market, but check cashers and payday lenders aren't the best options for improving financial health." p.170 But check cashers and payday lenders ARE part of the market, meeting said needs, and for many a good option, as she demonstrates earlier in the book.
"The big banks have demonstrated a lack of interest in providing the financial products and services we need at a price we can afford....The only way to guarantee that all of us will have the ability to achieve financial health is for the government to intervene...." p.171 There is a good deal of competition among "alternative" service providers, and (as the author stresses) they post their prices clearly, in big letters. Robust competition, and posted prices, everywhere else drives prices down to about the lowest level consistent with covering costs. What any good or service costs, at a minimum, has to do with the cost necessary to provide it. Should government subsidize such services, we'll pay it in taxes.
"...nearly all states restricted branching in the late nineteenth and early twentieth centuries to protect consumers from monopolies." p.27 Until the Depression, banks were generally not allowed to have more than one location (no branches). So, a small town had but one bank; an urban neighborhood had but one bank. Without the internet and credit reporting agencies, one could only borrow from someone who knew you, or your landlord or your employer - that is, your hometown or neighborhood banker. There was NO competition - by law. States created banking monopolies. Branch banking, and interstate banking (prohibited until the Depression) give us the robust competition we see today.
On the Depression, in 1929: "Risky investment had led to the crash, and the (new) law was designed to minimize banks ability to take such risks." p.26 The thousands of banks that failed during the Depression, were virtually all single branch banks, general in farming areas. Farms failed, in mass, due to the collapse of exports, due to the effects of the tariff act. Farmers could not pay their mortgages, so banks failed. A mortgage is generally considered to be one of the soundest investments. There was little risky investment by banks.
A quick reading of a history of banking, and a leavening of logic, would have greatly informed the work.

[Derek · Rating 4 out of 5]

This was an impulsive grab while at the library. It was not on my reading list, but the subject was right in line with things I've been interested in learning more about. I'm glad I picked it up. Servon has provided a very good, brief examination of the state of the financial industry's service to the broad public, including the alternative financial services that are so often reviled (payday loans and check cashers) and informal financial service arrangements.

I find it interesting to see how different are industry trends than those I've seen. My experience with banks has not been nearly as negative as those reported here. I acknowledge that I have greater privilege than many in the US by virtue of my upbringing and background. but still, I have been rather poor for much of my adult life, and have not experienced some of the problems that Servon describes from the banking industry. I've never experienced with delays in having access to money I deposit, or penalties for low balances (aside from overdrafts). I haven't seen manipulation of check resequencing; on the contrary, I think there have been occasions where banks have been generous about sequencing debits vs. checks on my behalf. Not that I'm suggesting my experiences disprove any of her claims about widespread industry practices.

One of the most fascinating aspects of the book are Servon's personal experiences with the alternative financial services industry. She did not just rely on accounts of individuals with those industries, or research statistics, but herself took jobs for months at a time within a check cashing and a payday loan business, respectively. Her insights from her time there were fascinating. She painted a picture that was much more nuanced. Not that she was necessarily favorable to those industries; she also spent a considerable amount of time working a help hotline for victims of predatory activity by alternative financial industry businesses, and saw some terrible activities.

Her biggest criticism is for the banks that have left the so-called "subprime borrower" demographic without other options.

I was completely unfamiliar with the informal financial networks, the ROSCAs. Fascinating to see how communities can find ways to help each other. They are insufficient to enable people to accomplish complete financial well-being, but appear to do remarkable work at accomplishing specific limited financial goals.

Servon discussed some on the innovation happening, both that driven by modern technology, especially mobile devices, and that being spawned because of the gap left by the disinterest of the mainstream financial industry. It helps provide a hopeful picture of the possibilities in the future.

A number of specific government policies are alluded to which could help enable increased financial well being for those currently not being served by the mainstream financial industry.

The book is brief and positive, not nearly as harsh as many of the political or social issue books I often read (justly) are. It isn't nearly as emotionally fatiguing. It's a fairly easy, if still thought provoking read on an important topic.

[Rahul · Rating 5 out of 5]

This book documents the uncomfortable truth that nobody seems to be talking about. Set in the United States, it talks about the underbanked population. How people have lost faith in the big banks and how big-banks are solely focusing on the rich, trying to make good quarterly numbers thus leaving the less-well to do outside the system. And once you’re outside the system – the maze of credit ratings and credit-worthiness makes a person’s life doubly hard.

As the biggest banks have grown larger and larger, they’ve gained more and more influence on the govt. and the economy has grown overly dependent on their success. A big example of this would be the following two passed Acts:

Glass-Steagall Act (1929) : Banks CAN’T do investment and commercial banking
Gramm-Leach-Blilely Act (1999): Bank CAN do investment and commercial banking

In 2014, Americans paid $32 billion in overdraft fees and $6billion of it went to the three biggest banks. (Chase, BoA and Wells Fargo)

Millennials were raised to believe that they could find jobs that would allow them to pursue their passions, rather than simply work to make a living. What they’ve found is that the reality is much different. Saddled with student debts and after graduating they only find low-paying jobs which doesn’t make use of their degree and forced to do multiple jobs at irregular hours with few benefits.
Eventually they have to go and get access to credit from big institutions which tricks them into fees and charges which were apparently “disclosed” to the customer in the 44-page disclosure. Their credit scores drop and they become underbanked or in cases unbanked. Thus, come into picture payday lenders and alternative financial service providers.

The essence of the book is why low-income people go to payday lenders even though they are perceived to be predatory. It is because they are upfront about the charges and there are NO hidden fees. The access to cash is quick as in the banking system check settlement still takes 2-3 days. Also, there seems to be a bit of personal touch which is now all but gone in the traditional banking space.

The author does list a few startups which is trying to cater to such segment and solve such knotty problems. Still early days though! But it is very likely that the technology will disrupt the banking space.
I completely agree with the author’s vision for financial health for the population –

“We need to ensure that anyone who works hard for 40 hrs each week can earn enough to support a family. We need to provide everyone with the opportunity to work and a strong safety net that will help people manage when work doesn’t work. We need to provide stable housing and affordable health care, so that one illness or accident can no longer send a family into debt so deep that they cannot get out.”

[Steven · Rating 2 out of 5]

In The Unbanking of America, Lisa Servon, a professor of urban planning, takes a dive into alternative financial services. I admire her thoroughness. This book records her time working for check cashing companies and payday lenders, her experience volunteering for a financial help hotline for those wishing to escape aggressive payday lenders, as well as her assistant's experience participating in a neighborhood savings club.

This book has one important observation: people who use these services are not stupid. If you are living financially on the edge, these services are actually cheaper to use than banks. A couple of good examples: banks deliberately process all of your debits first before they process any of your credits with the express hope of charging you an overdraft fee (which is also deliberately arranged such that it could cascade into several fees). If your bank balance depends on your payday check being processed before your utility bill, it's better to pay the flat 5 dollar fee to cash your payday check than it is to pay a $30 dollar overdraft fee from your bank. The second example, it's really hard to pin down how many days it takes for a bank to clear a check. Check cashers will do it immediately. Sometimes you need the money that check provides immediately and you can't wait 2-5 days.

I gave this book two stars because the later chapters don't really connect with the research conducted by the book. For example, the recommendations Servon makes in the last chapter have nothing to do with payday lenders, overdraft fees, or banking regulations. She might be right, but the text provides no evidence to make me believe so.

Additionally, the chapter on the banking habits of the Millennial generation was infuriating to me. The chapter mourns that this generation does not enjoy the financial prosperity and ease that the previous generation X and baby-boom generation experienced. I think this is all backward. The financial stability and ease in the United States from 1950 to 1970 is a statistical anomaly. Millennial should expect that the economy should behave more like it does throughout history: unstable and hard. Even then, this generation, my generation, still has it better than 95% of the rest of the world. There is nothing to really be sad about here.

[Michelle · Rating 5 out of 5]

Very clearly written book a little in the vein of Nickel and Dimed by Ehrenreich, in which the author, a professor, takes up jobs in a check casher's and a payday lender's - both refuges of the "unbanked" of America, and even, as it turns out, many of the banked, and intersperses her experiences and the stories she learns with studies and statistics.

I found it extremely eye-opening and was pretty infuriated with the bad behaviour of (some) banks, which have basically either tried to push out this "new middle class" - generally people with a middle class family background or a good education, but who are nevertheless financially precarious - from their clientele, or keep them and exploit them. Some of the stuff like reordering transactions so as to incur the most overdraft fees made my blood boil.

Everyone has probably heard the Vimes quote about how much more expensive it is to be poor than rich, in the context of boots - this is a theme of Ehrenreich's also - and this book reinforces that in the financial realm. The story about the woman paying $2 to withdraw $8 was a real eye-opener - all because an ATM only dispenses in $20s, but she couldn't afford to wait until her account accumulated $20. Servon illustrates just how much "illogical" behaviour on the part of this group of people is actually a rational response to their needs and the predatory nature of hidden fees and other less obvious barriers, and how often responsible behaviour goes unrewarded at best, and is punished at worst.

I think a lot of this could be corrected with various policies, like Medicare For All, though Servon does illustrate how tricky this can be, in the chapter about payday loans, where good intentions might lead to worse outcomes. Actually funding the CFPB, the only agency whose mandate is to protect consumer rights, might be a good start. Servon does mention some new companies touting alternatives to the current system, but that chapter was pretty weak and it was evident to me that none of them really tackle the root problem (to be fair, not even policies are likely to tackle the root problem) - namely that we have accepted inequality as normal and reject ways of redressing it as extreme left-wing, where inequality was once considered anti-democratic and high marginal tax rates were just the way things were.

[D.L. Morrese · Rating 4 out of 5]

Taking jobs at a check cashing service in New York, and at a payday lender in California, a professor at the University of Pennsylvania (and a writer and lecturer on consumer financial services) attempts to obtain some ground truth on the plight of financially insecure Americans.

I think it comes as no surprise that a great many Americans are struggling financially. The economy isn't what it once was. Adjusted for inflation, wages have declined since 1972. Secure jobs with benefits are relatively scarce. Although productivity has increased over the past few decades, most of the resulting benefits have filtered up to CEOs, managers, and stockholders. They no longer trickle down as pay raises or benefits for average workers. Personally, I don't see how this situation is sustainable. Too many people are living paycheck to paycheck, saving little, and are unable to cover contingencies such as medical expenses or car repairs, let alone luxuries. What may come as a surprise to some is how pervasive economic insecurity is. It's not just for the poor anymore. It's now affecting the middle class. Far too many find themselves marginalized in an economy that still hinges on consumer spending. With so many consumers effectively excluded, how can the system endure?

Anyone interested in this subject has seen the statistics. The author of this book goes beyond those to the personal level, showing what the impact is on some of these excluded individuals and relating how they cope. Many have turned away from banks to alternative financial services such as check cashers and payday lenders. When you simply look at the numbers, these services may seem predatory. Paying close to 2% of the value to cash a check, or 400% annual interest on a payday loan certainly seem excessive. But for some, this turns out to actually be less expensive than similar services from traditional banks, which do not offer small, short-term, unsecured loans, and charge exorbitant fees for maintaining low balances and for overdrafts. It's an interesting read about a subject that I think should be getting more political attention. There is a problem here that needs to be addressed.

[Ashley · Rating 2 out of 5]

A very basic primer on the banking system that dips a toe into the alternative financial providers such as check cashers, payday lenders, and informal organizations like ROSCAs. On the whole, I found this to be an over-simplified book that missed some key points. I was also surprised to see this was written by a professor and consumer finance writer with some solid names under her belt.

There were several egregious errors in this book, including the assertion that the FDIC "insures all of the money we keep at banks" which isn't true. Deposit insurance is limited to $250k per depositer per insured bank and while that sounds straightforward, it can quickly go squirrely since "depositer" is a broad term. There was also a math error in an example around overdraft fees ($34 + $34 = $68, not $78). Of note, these two errors were 30 pages in which eroded some of my confidence in her argument pretty early on.

She's quick to vilify banks as complex, expensive, and impersonal and that may be true but it serves a lot of people and provides a lot of products, all of which are heavily regulated. It's hard to do that nimbly, but all banks are striving toward it. She touched briefly on the regulatory burden banks are under but glazed over it a bit, which only served to minimize it. I can buy the argument that check cashers and perhaps even payday lenders have their place - so long as they operate under regulatory requirements that avoid miring people in rollover after rollover - but Servon's arguments aren't why I feel this way. I feel like she missed a lot of context in making her case and as a result, her conclusions are flimsy. I hesitate to even recommend this book as a primer because I feel like it lays a faulty foundation for understanding the issues she's trying to tackle here. My favorite parts of the book was hearing from her co-workers and clients about why they use check cashers or payday lenders - those stories and explanations were more impactful than the author's arguments.

Interestingly, she asserts that there are more payday lending stores than McDonalds in the US, which if true is impressive since payday lending is illegal is 14 states.

[Jennifer · Rating 5 out of 5]

This was a fascinating book about alternative financial services and the current state of the banking/financial services industry in the US. I was impressed at how much information the author managed to present in a relatively short book considering the complexity of our financial system. At the same time, the information was easily accessible and almost compulsively readable, quite a feat given the apparent dryness of the topic.

To gain exposure to alternative financial services, the author (a university professor) worked at both a check cashing store in the Bronx and a payday lender in Oakland, CA and her experiences there really helped to ground her writing in reality. Some of the topics she touched on were day to day operations and clients of check cashing and payday loan operations, including their fees and the motivations of their users, barriers of entry for the "unbanked" at conventional banks, how banks have totally moved away from serving small customers and seem in fact to be actively driving them away, how deregulation of the banking industry has led to "too large to fail" and how the government subsidizes these huge companies, to the detriment of small consumers, too much of the wrong kinds of regulation, such that it contributes to instead of solves problems, and how millenials distrust and are moving away from the conventional banking system, or at least, are not relying solely on it for their financial needs.

If anything, my one criticism is that I wish the section on new approaches being developed to address problems in the financial system was longer and more comprehensive. I'd recommend this book to anyone interested in money and finance in general.

[Vinay Badri · Rating 4 out of 5]

A pretty interesting viewpoint on how the middle class (as its defined here) in the US has moved away from banking to other forms - not necessarily cos the other forms offer better and more relevant services (they do) but due to the fact that bank are increasingly looking to focus on well-off, wealthy customers

As someone part of this industry and possibly someone who is able to view things from the entire prism of digital, it was indeed an interesting read looking into what goes into people eschewing traditional banks to check cashiers or pay day loan providers and there are a host of factors. Some of which banks are trying to work on - be it through Faster Payments or Same Day ACH but those days are still far away. Fees isnt really the issue - some of the other providers charge as much or even more than banks for the services they provide but the ability to have that money when you need it and not when it clears is a key part especially when you are literally living paycheck to paycheck.

The book also makes a very fair point on how banks are looking at serving affluent customers and not so much for their not-so well off. I try to compare it with things in India - banks (public banks esp) here do end up serving a good chunk of people who would probably be discounted in the US, which is in essence a good thing but then, these banks are also increasingly getting subjected to cutting down costs, scaling back their branches and in a way almost disadvantaging their consumers. A book that makes one think even if I feel it doesnt offer much of a solution from a banking side.