First accounts: a U.S. Treasury Department program to expand access to financial institutions

In 2002, there were almost 56 million individuals in the U.S. who did not have either a savings or checking account at a bank or other traditional financial institution. Additionally, over 83 percent of families without a bank account earn under $25,000. These families often use alternative financial services, including check cashing, payday loans, refund anticipation loans, and others, that provide convenience at high cost. A 2004 report estimated that these alternative financial services handled 280 million transactions, generating $78 billion in fee revenue. As a result, ?unbanked? low-income workers who can least afford to pay more for basic services often do. They pay to cash checks, are subject to higher interest rates on credit, and pay higher fees and interest rates for consumer loans, auto loans, and home mortgages. This article describes First Accounts, a program designed to provide better financial alternatives for the ?unbanked,? and highlights some insights from research on the Chicago-based First Accounts program.