"I wasn't getting any advice .... I was too ashamed to tell anybody I had all this debt," said Luann Algoso, a Portland, Oregon, resident and graduate student. "It wasn't a topic of discussion I wanted to bring up with my roommates even though I was close with them."
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Now 26, Algoso was 21 when youthful overspending on credit cards — "I didn't have any supervision at that point" — caught up with her. Her bank account was closed after accumulating hundreds of dollars in overdraft and related penalty fees.
When she found herself paying $40 or $50 to cash paychecks at Western Union, "I realized quickly the importance of having a bank account," Algoso said.
Entering the financial mainstream
That's typical, said Jose Quinonez, CEO of Mission Asset Fund, a nonprofit that helps low-income families access the financial mainstream. "The problem is people who don't have [bank accounts] are overpaying for their financial services," he said. On average, low-income unbanked people spend around 9 percent or 10 percent of their annual income on financial services, he said.
"That sounds about right," said Jennifer Rice, who estimated she paid about $250 a month during the four years she spent without a bank account.
In 2008, as a single mom waiting tables in western Texas in the wake of a divorce, 44-year-old Rice got a letter telling her that her checking account was being closed.
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Rice got a prepaid debit card, but she had to pay a $10 monthly fee, plus 99 cents per transaction, and $5 every time she wanted to load money onto the card. (This was before the mainstreaming of prepaid debit cards lowered the cost of use.)
To pay bills, Rice used money orders, but she paid on both ends: along with the roughly $3 she paid per money order, her utility company tacked on a $5 fee to accept payment that way — adding to her financial burden.
"It was scary, really scary," Rice said. After years of being turned away by bigger banks or deterred by high balance requirements on so-called "second chance" accounts, Rice was eventually able to convince a small community bank to take her on as a customer.
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Her story is a common one, consumer advocates say.
"Half of people who left the banking system did so because of hidden fees like overdrafts," said Susan Weinstock, director for the Pew Charitable Trust's Safe Checking in the Electronic Age Project.