There are plenty of reasons not to have a bank account. Banks are usually impersonal, regimented corporations. Bank fees take an increasing bite out of our funds; the poorer we are, the more it hurts.
If you live in the backwoods, banks might simply be inconvenient. Some people don’t want the hassle of paperwork. Or prefer not to create a trail with every transaction.
Some can’t get accounts because they don’t use a Social Security number or because they’ve had financial screwups in the past.
Language barriers or inability to deal with figures make a bank account baffling for some. Many immigrants come from cultures where banks can’t be trusted.
And speaking of lack of trust, under federal law, banks serve governments more than they serve us. They routinely transmit our account data to the IRS. They report any transactions that involve “too much” cash or don’t fit some statistical norm. They turn our records over to law enforcers without court orders, and even collect snitch fees when their reports result in seizure of our assets.
Since passage of the Bank Secrecy Act in 1970, your banker has automatically, by law, suspected you of drug dealing and money laundering. With the recent passage of the USA-PATRIOT Act, your banker is now required to suspect you of terrorism, as well. Soon, all U.S. banks will profile each customer and each customer’s “normal” financial activity. Their computers will report the slightest deviation to law enforcement. Something as innocuous as depositing an inheritance or the proceeds from the sale of a business could trigger a criminal investigation. After all, it’s an “abnormal” activity that involves a “suspicious” amount of money.
Who would choose to deal with an institution that so abuses the very people on whom its survival depends?
Most of us. Because not having a bank account, especially a checking account, is hard. Without one, it’s inconvenient to cash a paycheck, pay bills, make large purchases, get a loan, rent a car, grab a quick handful of cash while away from home, or even cash a modest Christmas check from Granny.
Nobody would ever say that banks don’t have their purposes. Still, a surprising number of people do without banks.
Banking on ourselves alone
The Federal Reserve estimates that nearly 13 percent of all American households (nearly one out of seven families) don’t have checking accounts. This estimate is probably low, missing many bankless illegal aliens, street people, mobile dwellers, and dedicated backwoodspersons.
When Federal Reserve poll takers asked some of the “unbanked” for their reasons, the second largest response (18.5%) was simply: “Don’t like banks.” The largest group (28.4%) said they didn’t or wouldn’t write enough checks to bother, which is an even more damning response meaning some 3.5 million householders simply decreeing banks to be irrelevant to their lives.
This irritates the powers that be.
There’s a global push to get people into the banking system, where corporations can profit from them, governments can track them, and they can eventually be pressed into giving up cash altogether. In the U.S., this drive found shape in the Debt Collection Improvement Act of 1996 (DCIA), which “encourages” people to receive all federal payments electronically, and the Treasury Department’s Electronic Funds Transfer Program of 1999, which implements the DCIA. Working with banks, the federal government created a special type of low-cost account, the Electronic Transfer Account (ETA), solely for people receiving government funds.
The next step is to net the rest of the “unbanked.” One of the last things Bill Clinton did before leaving office was announce a $30 million Treasury Department program to create a new type of low-fee account (called the First Account) similar to the ETA, but for people who don’t get government checks. The same program aims to stick ATMs into every cranny and corner of America, since the new account types are accessible primarily by ATM. The program will also “educate” poor dumb bank avoiders about the benefits of doing business with their local branch of FirstGlobalMegaDataSurveillanceCorp or The Bank of Leviathan.
Well, when the Friends of Government want the whole world to go one way, Free Outlaws should be riding off in the opposite direction. Which is where this article comes in.
It isn’t about persuading you to give up banks. If you’re comfortable with them, fine. It’s not about saving you money, because going bankless may cost more than banking. It’s also not about hiding assets or tax avoidance (though three cheers for both of those).
It’s about real-world alternatives—including notable advantages and drawbacks—for taking your income in and sending your payments out.
A caveat: Be aware that the fedgov now requires all businesses to squeal on “suspicious” customers. Prior to 2001, every financial service business, including storefront check-cashing services and money wiring operations, was required to report cash transactions above a certain dollar figure—$3,000 for postal money orders, $5,000 for transactions at a bank, $750 for overseas wire transfers, $10,000 in cash business at “non-depository” financial institutions. Other “suspicious” transactions and patterns of transactions also trigger reporting, for instance, “structuring” your transactions in smaller increments in such a way that some clerk guesses you’re trying to evade the reporting limits.
Now, while those same requirements still apply, the USA-PATRIOT Act further demands that every business—from your furniture store or car dealer to (presumably) your bookie and your drug connection—report you if you 1) make any cash purchase of $10,000 or more, 2) make any series of cash purchases that adds up to $10,000, or
3) make any cash purchases that look as if you might be trying to avoid the $10,000 threshold by coming in just under it. (Columnist Vin Suprynowicz has pointed out that this is like fining you for going 43 mph in a 45 mph zone. But It’s Not Just a Bad Idea; It’s the Law.)
Naturally, serious criminals will find ways to avoid such reporting, while thousands of innocents and clueless petty criminals will be caught in the federal web. So be careful out there.
It may be increasingly difficult to avoid Big Brother. But you can still avoid his pal, Big Banker. These are just a few of the ways.
The good: It’s easy, familiar, traditional, and welcome (almost) everywhere. It’s anonymous unless you choose to reveal your identity or exceed a reporting threshold. Undetectable except at close range. Depending on your line of work, customers or employers may be glad to pay you cash in exchange for a low hourly or project rate.
The bad: Risky to send through the mail. You have little recourse if it’s lost, stolen, or scammed from you. The traditional danger of having your cash seized by highwaymen and cutpurses is now joined by the danger of having it stolen by uniformed criminals in the name of civil asset forfeiture. Even a few hundred dollars of cash can be considered evidence of drug dealing. Most cash carries minute traces of cocaine and can be detected by drug-sniffing dogs, yet more grounds for confiscation.
The ugly: Radio-frequency ID chips are now so small that they can be woven into the fibers of currency, making all bills individually identifiable and electronically trackable. Euro notes are to be chip-equipped by 2005. Watch for the U.S. to follow suit.
Postal money orders
Money orders are available at every post office in the U.S. At 90 cents apiece, they’re a relative bargain. Hand over your cash and walk out with a slip of paper in the amount of your choice (up to $700 per money order), which you can send to creditors or use to make purchases. Beneath the reporting threshold, the buyer of a postal M.O. can remain anonymous. Only the person who cashes it must identify himself.
The good: Generally a safe way to send money through the mail. If you cash money orders at your local post office where your face is familiar, the clerk probably won’t require ID. If you ask a customer or debtor to pay you with a postal M.O. with the “to” line left blank—that is, without your name on it—you can then pass the M.O. along to make a purchase or settle a debt without creating any obvious record of the money ever being in your possession.
The bad: When asking people to pay you this way, you must emphasize (and re-emphasize) that you mean a postal money order, not one from a bank or other business. Postal M.O.s can be cashed at any post office. But an M.O. from a bank in Nebraska won’t do you a bit of good if you’re trying to get cash in Mississippi. There’s also a risk in mailing any money order with the “to” line left blank. A blank M.O. is a bearer instrument and can be used by anybody who gets his hands on it—including crooked postal clerks who may raid your mail for weeks before you catch on. (It happened to me.)
The ugly: The U.S. Postal Service is soon to implement a system that will enable it to track, in real time, the course of any money order as it is cashed or deposited. This computerized system will automatically notify law enforcement of any transaction that looks “suspicious.”
Neighborhood check-cashing/money wiring services
They’re everywhere—those storefront operations that cash your paycheck or give you a mini-loan. They’re in poor neighborhoods, downtowns, and at truck stops. They’re even in small towns, at least towns that have lots of migrant or otherwise unbanked workers.
The good: They enable you to cash checks without having to have a bank account. Most also offer versatile options for receiving or sending money worldwide without a bank, via their contracts with companies like Western Union.
The bad: They’ll charge anywhere from 1 to 6 percent of the face value of the checks they cash. And they do keep records on you, including, in almost all cases, your Social Security Number. Their money-wiring services are even more expensive ($75 to send $900 from California to Texas, for instance) and should be used only in an emergency.
The ugly: They’re increasingly regulated and scrutinized because the federal government views them as tools of Evil Drug Lords, who supposedly send hundreds of “runners” to launder billions of dollars in tiny chunks.
Tip: Western Union is in the process of implementing a system that will enable you to pick up wired cash from certain ATMs—and to do it without having a credit or debit card, just a pickup code. They’re encountering lots of technical difficulties, such as what to do if someone wants to wire $337.46 to an ATM that dispenses only $20 bills. But the prospect is interesting—for convenience, if not for privacy.
Direct-deposit debit cards
Something relatively new: ATM cards without checking accounts. There are several different types. Some enable any company from which you regularly receive money to deposit your paycheck direct to a card-only account. Others can be purchased pre-loaded with funds (like phone cards). You can then use your card to get cash from an ATM, to buy things, or pay bills.
The good: Simpler and cheaper than opening a checking account. Easy and safe to carry. Ideal for people who’ve been refused bank accounts, since there’s no refusal based on past records. There are versions of the card that can be purchased by individuals, and versions for companies who want to use this method of paying numbers of employees or contractors.
The bad: As with other ATM cards, these create a record of every transaction. If privacy is a concern, use them only to get untraceable cash from the ATM, not to make purchases. Many card sellers still want your blankety-blank Social Security number before issuing a card. While all these cards can be used to get cash at ATMs, some have a limited capacity for making purchases, so understand your card vendor’s terms well before you sign up.
The ugly: It’s part of the move toward a cashless society.
Offshore debit cards
Okay, this one usually involves having a bank account. The difference is that the bank doesn’t make regular reports to the U.S. government because it’s in the Bahamas, on the island of Jersey, or perhaps even in Latvia (yes, Latvia, which is aggressively aiming to be the poor man’s offshore banking haven).
There are two broad categories of offshore debit cards:
• Conventional debit cards associated with an offshore bank account
• Anonymous cards using only a number, not a name. These you purchase pre-loaded and rechargeable, like U.S.-based cash cards.
The good: Although your transactions are recorded, the record is less accessible to snoops to access because it’s under the jurisdiction of a foreign government. The cash that backs the card is also harder to grab. In some cases, you can transfer funds into an offshore card account very easily and inexpensively via an online service like e-gold (http://www.e-gold.com/).
The bad: Some offshore banks want to deal with Americans only if they’re rich, although many others allow initial deposits of $1,500 to $5,000. Anonymous cards may cost several hundred dollars to purchase, and they may be useable only at ATMs, not at point of purchase. Don’t imagine that your money is invisible, simply because it’s offshore. The U.S. government has a long arm and a heavy hand—and the push to end bank confidentiality is global. Also, because your money’s kept offshore, you also don’t have the protection of the FDIC.
The ugly: The term “buyer beware” could have been invented for purchasers of offshore financial services. Check out any offshore financial institution with officials in the country, experienced customers, or a reliable financial privacy newsletter whose publishers do hands-on research. Know whether your chosen country has treaties with the U.S. that require it to disclose financial data for any reason other than investigation of major crimes.
An uphill struggle
This article covers only one small aspect of banking alternatives. There are other options, from the traditional (having a relative or friend cash checks for you) to the up-and-coming. A slew of Internet-based payment and money-storage schemes hint at eventual liberation from conventional banks. Some of these may one day deliver the privacy that’s increasingly unavailable in the real world. But they don’t yet offer the widespread usefulness of cash, postal money orders, check-cashing services, or ATM cards.
Anyone seriously interested in financial privacy should also be looking at offshore banking (and looking at its dangers and restrictions, as well as its advantages) and other forms of privacy protection.
Anyone who cares about privacy has a hard battle ahead. Nevertheless, it’s worth any effort to thwart snoops because privacy—self-ownership—is one of the two keys to restoring freedom. (Hint: Masaad Ayoob covers some practical aspects of the other.) Fortunately, with a determined effort, privacy is still possible.
If your reason for being “unbanked” is something other than privacy, then be of good cheer. You can go on thumbing your nose at First Untrustworthy Bank and Trust with impunity.
Thank you to Duncan Frissell for setting me on the path to this article.