When a company takes on the task of providing financial services to people overlooked by large banks, that would seem to be a good thing: Such customers need bank accounts, debit cards, and credit just like everyone else.
In 2013, nearly 10 million American households didn’t have any interaction with a bank, and nearly 25 million households had bank accounts but used alternative financing options (such as prepaid debit cards, alternative credit cards, or payday loans) to make ends meet.
One would hope that financial offers geared toward the underbanked—who often have low credit scores, histories of financial instability, and limited education—would include modest interest rates, easily decipherable language, and enough oversight to ensure that already-struggling families don’t get taken advantage of. But that is often not the case. (For examples, payday lenders frequently charge astronomically high interest rates for those who are unable to quickly pay off their debts, and prepaid-card companies often include additional fees that owners of standard debit cards don’t have to deal with, such as charges for simply loading money onto their cards.)
These practices can leave people, who are already struggling to get their finances in order, in even worse shape than they were when they signed up for a new product. The problem isn’t that companies targeting the underbanked exist at all, but that many exploit a lack of financial knowledge and alternative options to extract excess money from their customers.