Millions of Americans opt to do without bank accounts

WASHINGTON -- Grandma stuffing money under the mattress isn't the only one living outside the banking system.

As many as 28 million people in the United States are forgoing traditional financial institutions because of mistrust, cultural and language barriers or a belief that by the time all the bills are paid there will be nothing left for an account.

That can be expensive and risky. People can run up big fees to cash checks, pay bills and meet their other financial needs. Walking around with large amounts of cash can make them a target for thieves.

The bankless are estimated to earn hundreds of billions of dollars a year in income. Seeing a business opportunity, banks are trying to draw in these potential customers. So, too, are check-cashing businesses and retailers, including Wal-Mart.

Many people, however, still resist, preferring to remain in the financial shadows.

They tend to be minority -- Hispanic or blacks especially -- as well as low-income and young.

According to the Federal Reserve, about one in 12 families -- 8.7 percent -- does not have a bank account.

The number is higher for the poorest -- nearly a quarter of families earning less than $18,900, the Fed said, citing 2004 data.

For some, like Rosa Alvarez, the financial choices can be bewildering.

"I don't understand about this bank stuff," said Alvarez, 54, who lives in Texas. A nagging fear that she might make a mistake "if I don't keep up with it right or something" keeps her from opening an account. She had one once, briefly. But she had trouble keeping track of her balance. She thinks that when the account closed, she owed the bank $12.

Carlos Maren, 25, a cook, is afraid that if he opens a bank account in the United States, he will get hit with fees for not keeping in enough money or for taking out more money than he has.

"My uncle sometimes says that it's expensive ... because if you don't have money in the account, [the bank] is going to be charging you," Maren said.

Leonel Mendoza, 32, a hospital worker, is not comfortable with banks in this country.

Both he and Maren do their financial transactions at a check-cashing outlet in the Adams Morgan neighborhood of Washington, D.C. They say it is convenient and they like knowing upfront what they will be charged to cash their paychecks, buy money orders, and, in Maren's case, wire money to his native Mexico. He has a bank account there.

Those charges can add up.

A Consumer Federation of America survey of check-cashing outlets, found that on average it cost $24.45 to cash a $1,002 Social Security check last year. A blue-collar worker pays an average $19.66 every week to cash a $478.41 handwritten paper check.

Having a bank account can be expensive, too, if it is not managed wisely.

Failure to keep track of an account balance can incur a penalty of $20 to $35 each time a check is bounced or an account is overdrawn.

The number of families without bank accounts decreased gradually from 1989 to 2001, then leveled off, the Fed said.

Federal Reserve research found that the most common reason families gave for not having checking accounts was that they did not write enough checks to make it worthwhile. Many people said they did not like dealing with banks.

Some -- regulators could not provide a percentage -- are in the country illegally. Without some proof of identification such as a driver's license or a passport, they cannot set up a bank account.

Check cashers and other outlets give them a financial lifeline.

"You purchase the transactions you need, when you need them. Prices are posted. There are no surprises," said Joseph Coleman, president of Rite Check Cashing Inc., which operates stores in New York City's Harlem neighborhood and the borough of the Bronx.

Alvarez, a Texas cake decorator, cashes her check for free at the supermarket where she works and hides her cash in books at home.

"When I need money for gas, I get a little bit out," she said. "When I pitch in for groceries, I get it out. But sometimes I'm scared the house can burn down. My money will be burned with it," she said. Or, there could be a break-in, she worries.

Some of the potential perils for the bankless include theft, forgetting where you stashed your cash or losing your money.

"If you have most of your money in a bank, you have protection. If you are carrying it all in cash, it is easy to lose, easy to be stolen and easy to spend," Fox said

In Prince William County, Va., there were 351 robberies last year and more than 40 percent involved Hispanic victims -- many of whom were new to the country -- who had large amounts of cash on them, said police chief Charlie Deane. Many of the robberies occurred on paydays -- Thursday or Fridays.

"The criminal element is aware that many of these people do not put their money in a bank," Deane said. "Many of these individuals are living in conditions where they have to share common space, so they often don't have ways of securing their cash where they live. So therefore they carry the cash with them," he said.

The robbers, when caught, have told police they targeted the victims because "they knew they were carrying cash," he said.

There also is a long-term impact for those who opt to do without banks.

"The ability to sock away money for a rainy day and to cover emergency costs are enhanced if somebody is using a mainstream financial institution and begins to get on a pattern of regular savings," said Barry Wides, deputy comptroller of community affairs at the Office of the Comptroller of the Currency.

The ability to establish good credit through a bank is crucial to getting competitive interest rates on loans for homes, cars and other items. Those with spotty credit are charged higher rates.

Despite all her fears about banks, Alvarez said one day she would like to become a steady bank customer. She thinks it will help her build a nest egg and feel more financially secure.

"When I cash my check, I'd maybe put $25 in savings that would never get touched until something like an emergency happens," she said.

On the Net:

Federal Reserve: http://www.federalreserve.gov/

Office of the Comptroller of the Currency http://www.occ.treas.gov/

Financial Service Centers of America: http://www.fisca.org/

American Bankers Association: http://www.aba.com/default.htm

Consumer Federation of America: http://www.consumerfed.org/