Building Financial Security by Overcoming Identification Barriers
For the nation’s 11.3 million unauthorized immigrants, the lack of identification, or ID, can be a major barrier toward completing even basic tasks, such as renting an apartment or collecting a package from the post office. This affects not only immigrants themselves, but also their families, since the children of immigrants who are American citizens may have difficulty enrolling in school or accessing health care benefits. The lack of ID also affects entire communities by complicating interactions with law enforcement and health care personnel.
A report released last month by the Center for American Progress recognized these barriers and discussed a broader range of IDs that are now available to help better integrate unauthorized immigrants. One of the underappreciated benefits of these expanded ID efforts is increased access to safe and affordable financial services for these residents whose economic status is often vulnerable. Connecting unauthorized immigrants to the financial system provides them with better economic outcomes, as they save money and time in their dealings with financial institutions. This connection helps reduce the incidence of crime—since unauthorized immigrants and families are less likely to carry large amounts of cash if they have a safe place to deposit their money—and it helps them build a financial identity in the United States.
Perils facing the unbanked
The 17 million adults in the United States who currently lack bank accounts—including approximately 18 percent of Latinos and close to 21 percent of African Americans—make up a population known as the unbanked. Noncitizens in the United States are three times more likely to be unbanked compared to U.S.-born citizens, and they are nearly five times more likely to be unbanked as foreign-born U.S. citizens. There are a number of reasons why this occurs—whether it is the feeling among the unbanked that they do not have enough money to have a bank account or they do not trust banks or do not like dealing with them. Notably, 23 percent of Latino households reported that they lacked a bank account due to ID or banking history problems. These are some reasons that demonstrate the need for better outreach and more accessible products.
Having a bank account can stop an expensive and time-consuming process in which struggling families pay twice for financial services—first by paying to cash a check at a check-cashing store or other business and again by purchasing money orders or making payments in other ways. In most cases, having a bank account is significantly cheaper. A low-income worker who uses check cashers and buys two money orders each month to pay bills spends at least hundreds of dollars each year—possibly thousands—in fees, while an account at a bank or credit union may either be free or have a low monthly fee. In total, this amounts to billions of dollars that could be spent in the local economy, or for an unauthorized immigrant, these dollars could instead be sent to relatives back home. In addition to convenience, having an account can also be a matter of public safety; carrying large amounts of cash can position immigrants as targets for crime.
Overcoming the ID gap
The lack of a federal ID should not be a barrier to getting a bank account. Over the past decade, banks and credit unions have increasingly accepted consular cards—cards issued by a foreign consulate to its citizens living in the United States—when potential customers apply for an account. According to a 2011 survey of banks conducted by the Federal Deposit Insurance Corporation, a majority of all but the smallest banks surveyed reported that they would accept other foreign ID—such as a consular card—in addition to more familiar forms of ID—such as foreign passports and Individual Taxpayer Identification Numbers, or ITINs. Indeed, New Haven, Connecticut—the first city to launch a municipal ID program to empower unauthorized immigrants—did so partly because unauthorized immigrants were targeted for the amounts of cash they carried because they lacked a bank account.
Some cities’ municipal ID efforts have also helped to plug this gap. Dozens of cities currently administer BankOn partnerships—campaigns with local financial institutions and advocates—to facilitate access to bank accounts for the underserved. San Francisco and New York, two cities with longstanding BankOn programs and a significant immigrant presence, have incorporated acceptance of their new municipal IDs—available to unauthorized immigrants—into this partnership with local banks and credit unions. The California cities of Oakland and Richmond both took a different approach, introducing municipal ID cards—also available to unauthorized immigrants—that double as prepaid debit cards. Cardholders can load funds onto the card through direct deposit or merchants, use the card for purchases such as online shopping, or get cash from ATMs. However, the fees on these cards—which include monthly fees and withdrawal fees—may make them less attractive to consumers than other prepaid cards or bank accounts.
Having a bank account is only the first step in building a financial identity. With an account, unauthorized immigrants are also on a path to access affordable loans and build credit in the future, instead of relying on predatory lending or on the informal economy for their borrowing needs. This opens the door to additional economic opportunities down the road.
Expanding access to identification is a powerful tool to better integrate unauthorized immigrants and their families into the community. Cities such as New York and San Francisco also demonstrate that IDs can help build a financial identity in the United States and build financial security in the process. Excluding residents from the financial mainstream brings needless costs and risks not only to unauthorized immigrants but also to their families and communities. Cities and financial institutions should be lauded for their efforts to close this gap.
Joe Valenti is the Director of Consumer Finance at the Center for American Progress.
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Director, Consumer Finance