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Language barriers in banking

The costs of not having a bank account

Banks: Overcoming language barriers

What does it mean to be unbanked or underbanked?

How many people in the United States are unbanked?

What issues do language barriers in banking cause?

Do banks have translators?

The Bottom Line

Personal Finance Banking

Banks: Overcoming language barriers

Language barriers make it difficult for some to get access to banking services

By Rebecca Lake

This article was published on December 02, 2022.

Confirmed by Suzanne Kvilhaug

In the United States, language barriers could make it difficult for non-English-speaking customers to gain access to banks, which means the process of paying bills and saving may be more difficult.

About one in 12 individuals living in the U.S. speak limited English and a large portion of them are unbanked.1 Today, however the Consumer Financial Protection Bureau (CFPB) and community banks are working to reduce the language gap to ensure that more people gain access to the banking services that they require.

Let’s examine the effects of the language barrier in banking and how they are being addressed.

Key Takeaways

People who have limited English within the United States may not have the ease of access to banking services that they need.

An estimated 4.5 percent part of U.S. population is unbanked and therefore don’t have a bank account or are using traditional banking products or services.2

Hispanic households make up 12.2 percent of the unbanked people.

Language barriers can make it difficult for non-native English people to access banking services, which can make paying off bills as well as saving cash more challenging.

Initiatives from organizations like the Consumer Financial Protection Bureau (CFPB) and community banks are helping reduce the gap in language.

Language barriers in banking

The language barrier can affect the ability of people to access financial services. Around 5% of people in the U.S. were unbanked, or did not have a bank account in 2020.3 However, the percentage for communities in which English is not the first spoken language is higher. For instance, in Hispanic households, in which Spanish is usually the predominant language, 12.2% are unbanked according to 2019 Federal Deposit Insurance Corp. (FDIC) data.4

Nearly 22% of the U.S. population speaks a language other than English at home–that’s 67.3 million people.5 A majority of them are fluent in English however, many of them don’t. More than one in 12 people over the age 5 is considered restricted English proficient (LEP) this means they are able to speak English less than well.1

People and communities not proficient in English can find it difficult to get banking services within the U.S. Even if banks offer basic account information or services in a variety of languages financial disclosures and written documents may not be available in other languages that English. Furthermore, newcomers might struggle to understand the way that bank accounts, investments and financial products function in the U.S.1

The Consumer Financial Protection Bureau (CFPB) offers numerous tools online to help Spanish users to better comprehend U.S. banking concepts, products and services.

The costs of not having a bank account

It could be expensive for a language barrier to make you bankless or underbanked. That is, you have a checking account with a bank, but also use alternative financial services.

The people who aren’t provided by the mainstream banks typically depend on more costly financial services. For instance, check cashing services may charge fees that range from 1% to 12% on the total check amount.6 It could cost you up to $120 for the check for $1,000. Banks can cash checks for noncustomers, however, this could mean the payment of a fee ranging from $5 to $10. For those who are the check due to the fact that they don’t have a banking account, these charges can amount to thousands of dollars every year.

The process of borrowing money can be expensive if you rely on alternative banking services. Alternatives such as payday loans or car title loans offer significantly higher rates of interest than traditional personal loans. Payday loans typically have an annual percentage rate (APRs) that are 300% or higher, can create an unsustainable cycle of debt that is hard to escape.7

Each state has different laws regarding payday loans, including what interest rates and fees can be charged by lenders. Some payday loans are considered predatory and are regulated in specific states.8

Banks: Overcoming language barriers

In recent times there has been rising awareness of the effect of language barriers in limiting access to financial services and banking. Both financial services companies and federal agencies are trying to tackle this issue.

For instance, Mitchell Bank in Milwaukee is among the banks that are opening branches in areas with low service. It has a branch called Cardinal Bank in a Milwaukee high school that has a 70% Hispanic immigrant population.9 Cardinal Bank offers financial literacy classes, which help customers who do not have Social Security numbers to apply for Internal Revenue Service (IRS) Individual Taxpayer Identification Numbers (ITINs) and utilizes the FDIC Money Smart program to develop financial skills for students as well as their parents.63

People with restricted English proficiency may also turn to government programs for help with banking services. A lot of states and cities have local advocacy for immigrants organizations that can direct people to local banks that provide services, education and outreach in different languages.

Additionally finally, the Consumer Financial Protection Bureau (CFPB) provides assistance to people who do not have English proficiency. Contact (855) 411-2372 to get support in more than 180 languages. The CFPB also provides free educational materials on banking in many languages.10

Note

Alongside the need to address difficulties with language, banks and financial institutions are also taking steps to make banking accessible to people with hearing and speech disabilities as well as cognitive impairments and visually impaired.

What does it mean to be underbanked or unbanked?

Unbanked is a term used to describe a situation where you don’t have an account with a bank. Underbanked means that you have a bank account, but you also utilize other financial services, such as check cashing services as well as payday loans.

How many people in the United States are unbanked?

Around 5% of the U.S. population, or 7.1 million households, were not banking as of May 2021. The percentage of households that were not banked was disproportionately higher among Hispanic, Black, and low-income families.3

What are the problems that bank language barriers cause?

Language barriers can make those who have restricted English ability (LEP) more hesitant to seek out banking and financial services. This can make it more difficult to manage their finances, pay off bills and save money. They may also be more likely to utilize costly banking alternatives, such as check cashing services or payday loans.

Do banks have translators?

Banks are able to use automated translation and interpretation tools to reach out to customers with only a little English proficiency. More banks are hiring interpreters and translators who can communicate with customers on the over the phone, or even in person.

The Bottom Line

Language barriers can make it difficult for those with limited English to obtain the banking services or products they need, but efforts are being made to tackle this issue in the U.S. As the banking sector becomes more inclusive individuals with less English proficiency might be able to open bank accounts and apply for loans and maintain their finances without having to pay large fees.