Boosting access to the US banking system is emerging as a prominent theme as Democrats tap discontent over income inequality ahead of the 2020 presidential election.

Following the 2008 financial crisis, many banks pulled back from their poorest customers. The shift has had lasting costs for millions of Americans now struggling to access mainstream financial services such as checking accounts and credit cards.

Ten years later, Democrats, driven by progressive firebrands like Senators Bernie Sanders, Elizabeth Warren and Representative Alexandria Ocasio-Cortez, see financial inclusion as a draw for voters.

The three Democrats, along with Senator Kirsten Gillibrand, have advocated for the US Postal Service to provide banking services. Senator Cory Booker has said he wants to ban overdraft fees and Senator Kamala Harris has called for a crackdown on payday lenders.

Gillibrand, Booker, Harris, Sanders and Warren are all running for president.

Humu Issifu, an African-American school worker from Chicago, said overdraft debt led her to close her checking account. Issifu, who now has a savings account, said she felt lawmakers do not care about struggles like hers but they should.

“I think more young students, more people would vote,” Issifu, 26, said.

Unlike other liberal issues such as affordable housing, gun control and taxing the rich, financial inclusion resonates among two key demographic groups: minorities and the rural Americans who powered Donald Trump into the White House, experts say.

Beyond overdraft charges, many Americans cannot afford minimum balances, annual fees and ATM fees associated with many bank accounts

“Candidates... are looking for ways to raise issues that are inherently about racial justice. They want to make sure they are mobilising black and Latino voters,” said Maurice BP-Weeks, co-executive director of Action Centre on Race and the Economy.

“But they are also looking for things that are common themes for people living in rural communities. Financial inclusion is one of those things that tie together those people.” Nearly 85 million Americans, predominantly from low-income, rural and minority backgrounds, do not have a bank account or only have access to basic banking services, according to Federal Deposit Insurance Corporation data compiled in 2017.

Both “unbanked” and “under-banked” households spend on average 10 per cent of their annual income as much as the average household spends on food to access basic services like check cashing or credit, according to a 2014 government study.

“It’s expensive to be poor,” Warren told Reuters in a statement. “We need a strong Consumer Financial Protection Bureau that cracks down on payday lenders... And we need postal banking so people in every community in America have easy and convenient access to basic banking products,” she added.

Beyond overdraft charges, many Americans cannot afford minimum balances, annual fees and ATM fees associated with many bank accounts. The cost of accessing financial services exacerbates the gap between the rich and the poor, a source of rising anger among voters which Democrats have seized upon.

Disconnect

“The paradox is that the economy is doing great but there is a disconnect between households and the economy,” said Ida Rademacher, executive director of non-profit the Aspen Institute’s Financial Security Programme. “A country’s financial system is a key determinant of whether an economy is fair or just.” A 2018 Pew Research Centre poll found 63pc of US adults believe the economy is unfairly tilted toward the rich and powerful.

“Closing the wealth gap and helping under-banked Americans achieve financial security are top priorities for Senator Gillibrand,” her campaign spokesman said.

Josh Orton, an adviser to Sanders’ campaign, said Sanders had long fought to curb payday lenders and introduce postal banking.

Representatives for Ocasio-Cortez, Booker and Harris did not respond to requests for comment.

Progressives like Warren and Sanders have pushed financial inclusion for years but the issue is getting more traction as progressives gain sway in the Democratic Party, said Mehrsa Baradaran, professor at the University of Georgia who has advised several campaigns.

Nationally, the unbanked and under-banked population has declined since the crisis, driven mainly by wage gains spurred by economic growth, the FDIC found. That improvement has been uneven, with the percentage of unbanked in a dozen states growing between 2013 and 2017, and could reverse if the economy slumps.

While rural households are more likely to encounter barriers accessing financial services, many cities have higher rates of unbanked than the national average, the data shows.

“I could see our life was getting harder and harder because I didn’t have an account,” said Dasan King, 19, a San Francisco movie-theatre worker who spent up to 5pc of his paychecks cashing them until he was able to open a bank account.

King said he was angry about the fees but was sceptical politicians would address the problem.

Published in Dawn, The Business and Finance Weekly, March 25th, 2019