More Americans opting out of banking system

In the aftermath of one of the worst recessions in history, more Americans have limited or no interaction with banks, instead relying on check cashers and payday lenders to manage their finances, according to a new federal report. Not only are these Americans more vulnerable to high fees and interest rates, but they are also cut off from credit to buy a car or a home or pay for college, the report from the Federal Deposit Insurance Corp. said.

Released Wednesday, the study found that 821,000 households opted out of the banking system from 2009 to 2011 and that the so-called unbanked population grew to 8.2 percent of U.S. households. That means that roughly 17 million adults are without a checking or savings account. Another 51 million adults have a bank account, but use pawnshops, payday lenders or rent-to-own services, the FDIC said. This underbanked population has grown from 18.2 percent to 20.1 percent of households nationwide.

The study also found that one in four households, or 28.3 percent, either had one or no bank account. A third of these households said they do not have enough money to open and fund an account. Minorities, the unemployed, young people and lower-income households are least likely to have accounts. Read more >>

Many Use Payday Loans to Cover Food, Rent

Many people think of payday loans as a way to cover an unexpected emergency – such as a car repair or medical expense – until your next paycheck comes in. But nearly seven in 10 people who use the short-term, high-fee loans rely on them for recurring, everyday expenses such as rent, food, utilities or car payments, according to a report published Wednesday.

And instead of using them for one quick fix, many are either seeking extensions or borrowing similar amounts again and again. That’s putting many people in debt to payday lenders for months at a time, at very high cost. “It’s not because of some unusual need that people are turning to payday loans. It’s because of some regular need,” said Nick Bourke of the Pew Center on the States, which published the report.

Payday lenders defend their industry, saying today's economic  reality is that many people regularly need a financial bridge to their next paycheck. “Of course there’s recurring use for this product. It’s often the best option for millions of Americans that are looking to manage their financial obligations,” said Amy Cantu, spokeswoman for the Community Financial Services Association of America, a trade group for payday lenders.

The Pew researchers found that parents are more likely to use payday loans than people without kids, especially if the household income is less than $50,000 a year, about the nation's median. In addition, people who are separated or divorced are more likely to use them than those who are married or single. Read more >>