IBPS Clerk Prelims Model Paper 11

Directions (1-7): Read the following passage carefully and answer the questions given below it. Certain words/ phrases have been given in BOLD to help you locate them while answering some of the questions. Life is expensive for America's poor, with financial services, the primary culprit; something that also afflicts migrants sending money home. Some 8% of American households- and nearly one in three, whose income is less than $\\$$15000 a year do not have a bank account. More than half of this group say banking is too expensive for them. Many cannot maintain the minimum balance necessary to avoid monthly fees. For others, the risk of being walloped with unexpected fees becomes too large. \\ Doing without banks makes life costlier; but in a routine way. Cashing a pay cheque at a credit union or similar outlet typically costs 2-5\% of the cheque's value. The unbanked often end up paying two sets of fees-one to turn their pay cheque into cash, another to turn their cash into a money order says Joe Valents of the Centre for American Progress, a think tank. In 2008, the Brookings Institution, another think tank, estimated that such fees can accumulate to , 40,000 over the career of a full-time worker. \\ Pre-paid debt cards are growing in popularity as an alternative to bank accounts. A renowned consultancy estimates that deposit on such cards rose by 5\% to ,$\$$\text{\$570 billion in 2014. Though receiving wages or benefits on pre-paid cards is cheaper than cashing cheques. Such cards typically charge plenty of other fees, many states issue their own prepaid cards to dispense welfare payments. As a result, those who do not live near the right bank lose out, either from ATM withdrawal charges or from a long trek to make a withdrawal. Other terms can rankle; in Indiana; welfare cards allow only one free ATM withdrawal a month. If claimants check their balance at a machine, it costs 40 cents. < br> To access credit, poor typically rely on high-cost payday lenders. In 2013, the median such loan was \$3 50, lasted two weeks and carried a charge of , 15 per , 100 borrowed-an interest rate of 322\% (a typical credit card charges 15\%). Nearly half of those who borrowed using payday loans did so more than ten times in 2013, with the median borrower paying , 458 in fees. In 2014, nearly half of American households said they could not cover an unexpected , 400 expense without borrowing or selling something. 2\% said this would cause them to re-sort to payday lending. Costly credit does not mix well with lumpy welfare payments. The earned-income tax credit (EITC), an income top-up for poor families, is paid annually, as part of a tax refund. The total refund can run into thousands of dollars, making it worth more than many families monthly pay cheque. Unsurprisingly, cash strapped households seek to borrow against this windfall in advance. Regulators have recently nudged banks away from issuing high-cost short-term loans secured against imminent tax refunds. But it is still common to borrow to cover the cost of applying for the EITC. In 2014, almost 22 million consumers used 'refund anticipation cheques', which offer a loan to pay the filling costs and collect repayment automatically when the refund arrives. These products typically costs between , 25 and , 60 for credit that lasts only a few weeks. \\ How might financial services be made cheaper for the poor? Mobile banking looks \textbf{promising}. But the poor are not yet well placed to benefit from the mobile revolution in financial services or otherwise. Only half of those earning less than}$$3 50, lasted two weeks and carried a charge of $\$$ 15 per $\$$ 100 borrowed-an interest rate of 322% (a typical credit card charges 15%). Nearly half of those who borrowed using payday loans did so more than ten times in 2013, with the median borrower paying $\$$ 458 in fees. In 2014, nearly half of American households said they could not cover an unexpected $\$$ 400 expense without borrowing or selling something. 2% said this would cause them to re-sort to payday lending. Costly credit does not mix well with lumpy welfare payments. The earned-income tax credit (EITC), an income top-up for poor families, is paid annually, as part of a tax refund. The total refund can run into thousands of dollars, making it worth more than many families monthly pay cheque. Unsurprisingly, cash strapped households seek to borrow against this windfall in advance. Regulators have recently nudged banks away from issuing high-cost short-term loans secured against imminent tax refunds. But it is still common to borrow to cover the cost of applying for the EITC. In 2014, almost 22 million consumers used 'refund anticipation cheques', which offer a loan to pay the filling costs and collect repayment automatically when the refund arrives. These products typically costs between $\$$ 25 and $\$$ 60 for credit that lasts only a few weeks. How might financial services be made cheaper for the poor? Mobile banking looks promising. But the poor are not yet well placed to benefit from the mobile revolution in financial services or otherwise. Only half of those earning less than $\$$ 30,000 per year own a smart phone, compared with 70% af more of those in higher income groups. Nearly, half those who do manage it have had to temporarily cancel their services for financial reasons. That might itself be the. result of disparate prices, those with poor credit ratings rely on pre-paid SIM cards which unlike normal monthly contracts do not come with a hefty discount for the handset. Low smartphone preparation in turn makes life more expensive in other ways. The unconnected do not benefit from the cheap communication, education and even transport the app economy provides. A quarter of poor households do not use the internet at all, which makes seeking out low prices harder.