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Access to Banking
About this Policy
Relationships with mainstream banks and credit unions are critical for financial health. Basic checking accounts, savings accounts, and credit cards can help people build credit and savings. A relationship with a bank can also open up other wealth-building opportunities, like long-term savings products, credit-building loans, home mortgage loans, affordable small dollar loans, and secure credit cards. We advocate for increased access to accessible, transparent, and low-cost banking products that meet the needs of low-income households and support banking access initiatives like Bank On Chicago.
Access Disparities in Illinois
More than 1 in 5 Illinois households are unbanked or underbanked. Those that are cut off from mainstream financial products are left to rely on costly financial services like currency exchanges and payday lenders to manage their finances. These services strip wealth from families and prevent them from establishing long-term financial security. The average unbanked worker in Illinois will spend about $700 a year to cash their payroll checks.
Program & Policy Priorities
Safe Small Dollar Loans: 12 million Americans every year get saddled with long-term debt from payday loans. Safe Small Dollar Loans offered by banks and credit unions meet the needs of consumers looking for a loan to assist them during periods of financial crisis without causing even greater hardship. They should have the following features:
- An APR, including fees, of 36% or less
- Term of at least 90 days, or one month per $100 borrowed
- Multiple installment payments required with no balloon payment at the end
- Lenders consider the ability of the borrower to pay
- Financial education is often included
Explore our Alternative Small Dollar Loan toolkit to learn more.
Credit Builder Loans: Credit builder loans are a highly effective dual credit- and wealth-building product for low-income individuals with thin credit files or no credit scores. Unlike a traditional loan, the money you borrow with a credit builder loan is deposited in a savings account – one that you cannot access until you have fully repaid the loan. If you pay the loan as agreed, the financial institution sends a good report to the credit bureaus. At the end of the loan term, you get the money that you deposited – and likely an improved credit score. But be sure to pay on time. If you miss payments, that negative information would also be reported. A 2013 study showed an average improvement of 35 points with six months of on-time payments for loans as small as $100.
Safe Checking Accounts: When reviewing checking accounts, the following account features may be important:
- No Monthly Maintenance Fees
- Low Initial Deposit & No Minimum Balance
- Free Check Cashing
- No Overdraft Fees or “Overdraft Protection”
- Accepts Alternative forms of Identification
- Unlimited Free Bill Pay
- No Inactivity Fees
- Linked to a Savings Account
Second Chance Accounts: A sizable portion of people are unbanked because they are in the ChexSystems. Many consumers are either mistakingly in the Chexsystems or find themselves listed there because they overdrew on a bank account years ago. More financial institutions should offer a pathway off of ChexSystems that includes access to a basic savings account and financial education. Upon completion of financial education, consumers should have access to a basic, free checking account.
Other Innovative Financial Products & Services: Many of our partners are offering innovative financial services or partnering with a local financial institution to offer a specific product to their clients. Here’s a look at some of those innovations:
IABG led successful efforts to remove the asset test from the Temporary Assistance for Needy Families (TANF) Program. Previously, families were not able to have more than $2000 in savings – preventing them from building longer term financial security. By removing the TANF asset test, we are enabling more families to take advantage of banking opportunities and build emergency savings.
Passed SB1332, creating Illinois Bank On. Illinois is implementing a statewide Bank On program that promotes access to safe and affordable checking accounts, a foundation for financial success.
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