This paper examines the market for personal financial services and finds that many Gateway City residents do not have bank accounts, which leaves them dependent on high-cost services like check cashers. Without bank accounts, families have difficulty developing the credit history needed to qualify for low-interest loans. They turn instead to pawnshops, rent-to-own stores, and auto title lenders, where they pay much higher interest rates and fees. Gateway City families also rely heavily on tax preparers, who often push costly Refund Anticipation Loans. Altogether, these high-cost financial services strip tens of millions of dollars annually from Gateway City households.
Fortunately, organizations working in neighborhoods around the country have developed models to help families connect to lower-cost financial services and direct their savings toward wealth building investments. While much has been learned from these efforts, successful programs have not been fully scaled. In the past they have lacked the capacity to make real impact, but emerging innovations give these organizations the ability to serve much greater numbers.
This policy brief examines the current market for financial services in each of the Gateway Cities, summarize past efforts to promote access to wealth building financial services, and highlights emerging opportunities. The brief concludes with a number of recommendations to help communities capitalize on these innovative new pathways to high-quality financial services.