Entrapment, in its most common definition, is luring a person into committing a crime by a law-enforcement agent.

Communities of color are all too familiar with entrapment, dating back to the vagrancy laws and black codes of the Reconstruction Era today’s biased enforcement of immigration laws against undocumented workers.

But there’s another form of entrapment plaguing communities of color that’s less obvious, yet just as damaging – the alternative financial services industry (AFS).

Nearly 50% of Black and Hispanic households are underbanked according to the 2017 FDIC National Survey of Unbanked and Underbanked Households.

According to the Center for Financial Services Innovation, consumers spend $173 billion a year in fees to check cashers, payday lenders, money transfer places.

Most folks who are living on low or volatile income, in a banking desert, or with challenges to their credit profile can’t access or afford a traditional bank account.

AFS providers are filling the banking void in communities of color with a fee-for-service model that puts consumers in a cycle of paying a percentage every time you need to make a financial transaction.

  • Need to cash your check—pay me
  • Need to pay a bill—pay me
  • Need to hold something small until payday—pay me a loan shark’s interest rate

Predatory financial services are a driver Black & Brown wealth inequality

According to McKinsey & Company’s 2019 report “The economic impact of closing the racial wealth gap, a full-time worker who cashes checks at an AFS store could save $40,000 over the course of a career by using a lower-cost checking account.

For a family, that $40,000 could be used for college tuition, down payment on a home, or seed capital to start a business — all drivers of wealth and economic empowerment that are lost on communities of color generation after generation.

While the macro solutions to closing the wealth gap are varied and complex – see our friend Dr. Naomi Zewde’s baby bond policy for ending the racial wealth gap – there are some simple, yet impactful behaviors that individuals can do to transition out of the trap of financial vulnerability and into economic mobility:

We’ve put together a short handbook of simple, actionable steps to transform your mindset about money, wealth, and personal growth.

Visit MoCaFi to learn get our free Wealth Guide and learn more about our mission to get 1M Black & Brown people banked.

Spend smart.  Build credit. Do you.