As Black History Month draws to a close, the connections between racial history, poverty, affordable financial services, and modern American life are hard to ignore. Over the past two years, surviving a pandemic has taught us that unpredictability and constant readjustments are stressful and costly. COVID and its variants have made everyday decisions, big and small, extremely difficult to plan ahead. But this costly unpredictability comes as no big shock to families who live paycheck to paycheck. Moreover, for many color families, still suffering the negative impacts of underline access to money and other forms of discriminatory treatment, these struggles are certainly not new.
COVID has also exacerbated pre-existing financial insecurity and new research from last month offers insight into the unequal physical and economic impacts of the virus, racially and demographically. It’s the latest data point that shows how low-income Americans and Americans of color have suffered the worst effects of the pandemic, just as they have during previous economic downturns.
In order to meet a multitude of expenses, all working Americans today deserve affordable access to their own money as they earn it. Childcare payments, utility bills, and loan or car insurance premiums rarely match pay schedules. Plus, costly and unscheduled repairs needed for a major appliance or vehicle, or a health insurance deductible, never happen on a schedule and can take weeks or even months to be reimbursed for families without sufficient savings.
These situations are particularly acute for black families. Historically, public policies segregated access to affordable financial products based on race by redlining some neighborhoods. The inability of most African Americans to access money at a reasonable rate to buy a home or acquire assets and begin building generational wealth, directly concerns to the many issues facing people of color today. 2018 research shows that four out of five of those neighborhoods where loans were banned due to racial demographics between 1935 and 1939 are still struggling today. A a plethora of interconnected legacy issues remain because if you have been denied equal access to financial products in the past, even access to your own money is much more difficult to achieve on equal terms than others.
Fortunately, the United States has made progress in mitigating inequalities in our culture and financial systems. But in recent decades, while great progress has been made, many programs that exist to correct past discrimination fail to eradicate the generational poverty it created. Additionally, unfortunately, sustainable, responsible, and reasonably priced access to cash remains critical to dealing with misaligned payroll schedules and surviving financial emergencies.
The concentrated use by African Americans to make ends meet of extremely expensive payday loans that must be repaid all at once is an example of an inherited problem resulting directly from generations of unequal access to financial products and services. Studies show that more than any other race or ethnicity, payday loans have a disproportionate impact on African Americans. Blacks make up about 13% of the total US population, but make up 23% of all in-store payday loan customers. At best, these lenders make money available to people who cannot get funds from a traditional bank. At worst, they target and trap people in endless debt, making economic progress virtually impossible. Research from the CFPB showed that four out of five payday loans with average fees of $15 to $45, are rolled over after just 14 days and on average, people end up paying $520 fee on a $375 loan. What is most troubling is that payday lenders operate in communities populated by people who can afford less repayment obligation or such excessive charges. The majority of borrowers using payday loans earn less than $30,000 per year and need 5 months to repay.
People of color who avoid payday loans and the ruinous debt cycle of these loans will unfortunately still face disproportionate costs of doing business with more traditional financial institutions. Black people pay the most in bank charges every year and black families are 1.9 times more likely overdraft their bank accounts than white families. Despite the increased control of overdraft feesmost financial institutions today have not reformed their overdraft policies, except for a select group of banks.
The disproportionate use of these alternative financial products and the high costs of traditional banking services by communities of color is why responsible, low-cost alternatives such as access to Integrated Earned Wages (EWA) are more needed today than never. On-demand payroll technology offers a new low-cost alternative without discriminatory barriers. On-demand pay is made available to every employee, regardless of credit history or any other personal factor. EWA’s employer-integrated products and services allow workers to access compensation they’ve already earned, pay bills, or use for emergency expenses. There are no interest payments, late fees or overdraft fees. Pay-as-you-go is available on the same terms to everyone, regardless of income level, credit score, skin color, gender, or any other personal or financial characteristic.
The employer-integrated EWA is also very inexpensive, with many platforms offering free access or charging a nominal $3 processing fee for expedited (instant) delivery. This solution requires employers to contract and align payroll systems with EWA platforms. DailyPay is one such company and Search DailyPay showed how and why it’s a payday loan killer and overdraft fee eliminator. While no fintech or new industry is ever perfect, millions of Americans each year already trust and turn to EWA in these uncertain times and enjoy greater financial stability. Access to affordable financial products like these plays an important role in achieving the racial equity goals that the private sector set itself in the summer of 2020, when the whole country began to rethink the how people of color are treated in the United States.
Today, we are at an inflection point where fintechs are helping to open doors to affordable financial products and services previously closed for specific and targeted race-based reasons. EWA, in particular, strives to throw those doors wide open and bridge the path to the fair financial future that so many have been working towards. As new innovations continue to help reverse the overlapping mistakes of the past, we encourage all partners in the technology industry to join us in this important mission.