Banking Advice: How to Get a Fresh Start at Your Bank

It may be unbelievable in the most advanced country in the world, but there are scores of Americans who live in a cash society. They have no checking or savings account, no credit card and have to pay a fee every time they cash a paycheck at a bank. But now, "fresh start" and "second chance" checking accounts are getting these people on the road to financial stability.

The FDIC says "unbanked" people represent more than two million families in the United States. Most of these families have incomes less than $25,000 annually. And there are about 4.5 million Americans who receive federal benefits, but do not have a bank account.

Why are there so many unbanked people in this country? Financial experts say the reasons vary, but typically unbanked people represent those who've had an account closed, welfare and Society Security recipients or people who are new to the U.S. banking system.

Once a person has had a checking account closed because of numerous overdrafts and unpaid fees, their name usually gets into ChexSystem. Financial institutions report the names of individuals with closed accounts to this national clearinghouse. When a person's name gets on this list, it can be almost impossible to open a new account because of the unpaid fees associated with the closed account.

But many banks and credit unions are now being pro-active in trying to help this population with a new program structured toward those who have had banking challenges in the past. Often called Fresh Start Checking or Second Chance Checking, these checking accounts offer service to people who want to establish a banking relationship and are willing to spend some time getting a financial education.

Typically, these programs are for those who had had no more than one unpaid account closure and a credit score of at least 500, although many banks will look at each prospective customer on a case-by-case basis.

These accounts frequently acquire a minimum balance to stay in the account, but it is often only $100. Banks also may require customers to use direct deposit for their paychecks. An ATM card is usually available, too, but most of these accounts do not offer a debit card.

Perhaps more importantly, many of these banks and credit unions require participants to enroll in usually free financial education programs. Often sponsored by community outreach groups and foundations, these workshops attempt to teach sound financial principals, such as making a budget, using credit wisely, financial goal setting and how to be financially organized. Some banks even offer one-on-one free credit counseling through local and state organizations.

In 2004, the Joint Center for Housing Studies said that unbanked people from low-income households often did not have identification documents needed for opening accounts, had difficulty maintaining minimum account balances and were likely to keep writing checks even when their accounts had low funds.

Another 2004 study of Latin Americans in the U.S. showed financial institutions were seen by immigrants as intimidating and inflexible. Some banks are combating this problem by hiring bilingual employees for the express purpose of working with Spanish speaking customers. They also are advertising in Latino publications in the community.