(281) 504-8000

Latest Blog Post

Are Banks Dumping The Middle Class?

Posted on Mar 06, 2012

Financial experts say excessive regulation of the banking industry is squeezing out middle-class consumers.

Analyst Meredith Whitney, the president and founder of Meredith Whitney Advisory Group, recently said in an CNBC interview that the trend is beginning to manifest itself in terms of who is driving most consumer spending.

Spending increases are taking place at the top and bottom of the spectrum, Whitney explained. The unintended consequence is it's really squeezing the middle end, she said. You're going to see more and more people living outside the system. When it happens, it becomes so much more difficult to operate ...The pendulum swings to too much regulation and it squeezes out the system.

The folks dumped by the system will turn toward payday lenders to access the money they need, she said.

Whitney's comments echo those from another prominent banking analyst, Rochdale Securities' Dick Bove, who last year warned that regulations such as Dodd-Frank would drive up the cost of doing business for banks and push millions outside the system.

These spending trends are supported by the growth in American Express purchases as compared to Mastercard, noted Leilani Doyle, vice president of marketing and product development at payment processing firm US Dataworks. AmEx is known as the long-term leader in cards for the upper middle class and upper class.

What I think is most significant is how American youth are also not as ingrained with traditional banking as prior generations, Doyle said. What good is a bank if you can't open an account because you have no credit, you can't go to your banker for a simple loan and if you do have an account, you are subject to all sorts of fees.

With the middle class being unserved by the traditional bank market, Doyle suggests that there should be a middle ground between traditional banks and payday lenders. The middle class deserves this and our country needs it in order to regain a new level of economic security, she said.

Source: CNBC, February 2012