How Do Banks Prey On The Poor?
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About a million Canadians don’t have a bank account, and about five million Canadians use their bank account very little, if at all. These people are typically those who financial institutions perceive as being too risky to access basic credit products – often those coming from lower-income neighbourhoods. Because these people are viewed with suspicion by many banks, their exclusion from the mainstream banking system has forced them to rely on high-interest fringe financial institutions like payday lenders. Basically, certain big bank policies, products, and behaviours can be seen as preying on the poor for being poor.
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How Do Banks Prey On The Poor?
People often rely on alternative financial institutions like payday and other high-interest lenders because traditional financial institutions deny them access to basic credit products. Banks view these individuals as a credit risk and will only lend to them at high interest rates, if at all.
Banks also prey on the poor by charging them high fees. These consumers are forced to pay certain types of fees, which ultimately takes away their hard-earned income, to access and utilize their bank accounts. Banking fees are often a vicious cycle for those who struggle to make ends meets. Paying monthly bank accounts fees means less money and having less money typically means paying monthly banking fees.
Most Common Banking Fees Charged By Big Banks
Unfortunately, some of the most common baking fees that banks and other traditional financial institutions charge often serve to penalize consumers for being poor:
- Minimum Balance Fee – Some banks require you to maintain a minimum balance in your account or else they will charge you a minimum balance fee. For people who can’t afford to keep a lot of money in their account, this fee is essentially a penalty for not having more money.
- Overdraft Fee – Many chequing accounts have an overdraft, where you can continue to withdraw or spend money from the account even if you don’t have enough money in it. However, if you use your overdraft, you have to pay a fee in addition to bringing your bank balance above zero.
- Non-Sufficient Funds (NSF) Fee – If you don’t have an overdraft, or your bank doesn’t honour a transaction because you don’t have enough money in your account, you will have to pay an NSF fee.
Many people living paycheque to paycheque can’t afford these fees. In order to avoid these extra fees, many consumers choose to manage their income without a bank account by using expensive cheque cashing services.
How Big Banks Push The Poor Toward Alternative Financial Institutions
Big banks often see those consumers who make below-average incomes as a credit risk. The reason given is a lack of funds needs to keep up with payments. As a reaction to this, these consumers are then often denied access to basic credit products like personal loans. To access the credit they need, the poor are then forced to turn to alternative financial institutions that charge eye-watering interest rates.
Whether it’s a payday loan to cover an emergency expense that their income couldn’t cover or cashing their paycheque at a cash-chequing establishment, using alternative options is costing these consumers big time.
Check out the difference between personal and payday loans.
Those with low incomes face a number of challenges every day, and one of those challenges is predatory behaviour by banks. Banks often charge fees that punish the poor for having less money, driving them further into debt and forcing them to pay more fees. Banks also deny these consumers access to basic credit products, forcing them to turn to alternative lending institutions that will charge them exorbitant interest rates.
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