Treasurer candidate Seth Magaziner says 1 in 4 Rhode Islanders has no bank account or uses high-cost financial services

In the race to succeed Gina Raimondo as Rhode Island general treasurer, Democrat Seth Magaziner is saying he can help poorer residents get low-cost banking services.

During an April 13 appearance on "10 News Conference," he said he would try to emulate a program in San Francisco, where banks and credit unions have joined with the city to offer low-cost, low frills bank accounts with minimal fees "that don't nickel and dime people."

The service is needed, he said, because, "In Rhode Island today, 25 percent of our households either don't have a bank account at all, or they have a bank account and they're still relying on high-cost financial services like payday loans, pawn shop check cashing and so on."

That's "the highest percentage in New England," Magaziner said.

The issue resonates in Rhode Island because activists have been trying unsuccessfully for years to limit the interest rate charged by payday lenders. Currently, they charge annual rates as high as 280 percent for short-term loans of up to $500. Critics want to limit the rate to 36 percent.

We were interested in knowing whether so many Rhode Islanders are using such costly financial services or have no bank account at all.

When we contacted Magaziner, his spokesman quickly pointed us to a copy of the 2011 FDIC National Survey of Unbanked and Underbanked Households, the latest version available.

The FDIC is the Federal Deposit Insurance Corporation, the independent agency of the U.S. government that insures deposits in banks and thrift institutions. The survey is based on responses from nearly 45,000 households.

It breaks households into three groups. In the first, nobody has an account at an FDIC-insured institution, a group referred to as "the unbanked."

The second is households in which people have a checking or savings bank account but also rely on what the FDIC calls "alternative financial services," which includes non-bank money orders, checking cashing services, pawn shops, payday loans, rent-to-own services and loans granted to people anticipating a tax refund; they are referred to as the "underbanked."

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The remaining households, in which people do not use alternative services, are characterized as "fully banked."

In 2011, according to the survey, 7.0 percent of the state's 423,000 households were unbanked and 17.8 percent were underbanked. Adding the two together gives you 24.8 percent, which rounds up to the 25 percent figure cited by Magaziner.

The percentage could actually be a bit higher. The FDIC report says that in 3.4 percent of the households, it could not be determined if alternative services were used.

The report found that the percentage of people who were unbanked or underbanked in Rhode Island had grown significantly from 2009, when it was 18.7 percent.

Magaziner was also correct when he said the rate is the highest in New England.

The next-highest rate is Maine with 22.7 percent. The lowest rate: New Hampshire at 14.4 percent.

The national average was 28.3 percent. Seven states -- Arkansas, Texas, Alabama, Louisiana, Mississippi, Nevada and Georgia -- had rates higher than 38 percent.

Looking at the people who did not have a bank account, about 33 percent said it was because they didn't have enough money, and another 20 percent or so said they didn't want or need an account. Among consumers who had once had an account, 7 percent said they gave it up because the fees or minimum balance requirements were too high.

Our ruling

Seth Magaziner said, "In Rhode Island today, 25 percent of our households either don't have a bank account at all, or they have a bank account and they're still relying on high-cost financial services like payday loans, pawn shop check cashing and so on."

He is accurately reporting the results of the FDIC's 2011 survey, the most recent available. Because this is a claim you can take to the bank -- if you have one -- we rate it as True.

(If you have a claim you’d like PolitiFact Rhode Island to check, email us at [email protected]. And follow us on Twitter: @politifactri.)