The rate of bank account ownership remains low in Los Angeles relative to the rest of the country, according to the most recent report by the Federal Deposit Insurance Corp. on unbanked Americans.

And that number is likely to fall even further once the effects of Covid-19 are fully factored into the data.

According to the FDIC, 7.1% of L.A.-area households did not have a bank account in 2019, compared to 5.4% of households nationwide.

The report, now in its 10th year, incorporates survey responses from more than 30,000 households, including nearly 5,000 in the Los Angeles metropolitan area, on subjects relating to bank account ownership.

One significant factor in L.A.’s disparity, according to USC finance and business economics professor Rodney Ramcharan, could be the region’s relatively large immigrant population.

“There is a greater foreign-born component in L.A. than elsewhere in the country,” Ramcharan said. “Some might not be comfortable with the American banking system and so don’t participate.”

The FDIC reports that Hispanic households, which represent a significant portion of L.A.’s foreign-born community, had unbanked rates of 14.6% last year. This amount is more than double the local average and nearly 30 times the average for local white households, who had unbanked rates of 0.5% in 2019.

A number of elements can contribute to a family’s inability or unwillingness to maintain a bank account. The most common factor last year, according to the FDIC, was the inability to meet minimum balance requirements. At most banks, account holders must maintain a minimum balance in their account each month or be charged a fee.
“The way banks make money is on the spread, or the difference between the long-term and short-term value of money,” Ramcharan said. “What happened in 2008 and onwards is that that spread compressed. Both short- and long-term rates came down significantly.”

Ramcharan said this situation meant many banks turned to fees to make up for lost revenue in the wake of the financial crisis. The inability to pay such fees, he said, likely contributed to bank accounts becoming unaffordable for more Angelenos after the crisis. The average local unbanked rate hit a peak of 9.7% in 2011.

The consequences for Angelenos without bank account access can be severe, including a reduced ability to handle financial shocks and ongoing drains on already strained finances.

“A lot of (unbanked) people live hand to mouth, meaning most of their current consumption comes from income,” Ramcharan said. “If you get a paycheck shock, like your paycheck being late or needing to fix your car, you don’t have access to cheaper sources of credit that a bank can provide. You might have to go to a payday loan.”

Unbanked individuals often also pay more to engage in basic transacting and handling of their finances. According to Nerdwallet Inc., people who use check-cashing services pay an average of more than $180 per year just to access their own money.

The FDIC data notably does not reflect the impending effects of the Covid-19 pandemic, and the agency noted that unbanked rates were likely to rise in the wake of this year’s economic shock.