Banking on the previously unbanked
A neighborhood bank is hard to find in low-income areas of Los Angeles. But the "Bank On L.A." program is trying to bring people reliant on check-cashing shops into the banking system. Tess Vigeland reports.
Julieta Velazco and her daughter Veronica. (Tess Vigeland)
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TESS VIGELAND: In the wake of the financial crisis, it's a challenge to figure out which banks to trust with your money. According to a new Gallup poll this week, our confidence in the banking system is pretty low to say the least. A record low 22 percent in fact. Even when you know your deposits are insured by the government, who wants to put their money with an institution that might be on the brink of failure?
But in a small segment of the population, issues with banks run far deeper than the events of the last year. For one thing, there are neighborhoods where it's just plain hard to find one.
Tess Vigeland: I'm standing at the corner of Breed Street and Cesar Chavez Avenue in the Boyle Heights area of East Los Angeles. From this point you could drive miles in each direction without seeing a bank branch. What you would see is plenty of what are called "non-institutional lenders."
To the east, for example, you've got Payday Advance; Jack's Market, where you can get money orders; Nick's Check Cashing; a Big Ben's Check Cashing. To the west, you've got Ace Cash Express.
In front of the one bank we could find, I met up with Matthew Fellowes. He directs the Pew Safe Banking Opportunities Project.
Matthew Fellowes: So the ratio in Los Angeles as a whole is about one to one. Here in this low-income neighborhood, Boyle Heights, it's actually more like four to one. So four check cashers or payday lenders for every bank branch. In fact this Bank of America branch is one of the only branches in this entire neighborhood.
Fellowes is spearheading efforts in urban areas to bring the so-called "unbanked" population into the banking system. And also to bring the banks to neighborhoods they haven't traditionally served.
Here in Los Angeles, the program is called "Bank on LA." The mayor's office says its goal is to add 10,000 people to the banking system and get them away from predatory lenders, like check-cashing storefronts, payday loan outfits and even liquor stores.
Thirty-year-old Nancy Rodriguez is one of the success stories. Last week, Rodriguez opened an account at a Union Bank of California branch in South Central Los Angeles.
Bank teller to Rodriguez: Just keep in mind, every time you want to withdraw cash, you have to come into the branch; deposit, you also have to come in. Nancy Rodriguez: Can it be any branch from...? Teller: You can use any branch. Rodriguez: OK, thank you very much ma'am. Teller: You're welcome. Thank you Nancy.
The single mother of four was unemployed for about two years. She racked up hundreds of dollars worth of overdraft fees and ended up losing her account. After that, any money she received from welfare checks went straight to the kitchen counter.
Rodriguez: You know what I was using a cookie jar.
Yes... a cookie jar.
Rodriguez: I taped a lid to it and I made a hole on the top and I was putting money into it.
She was also using local check cashing stores to get money to pay the rent.
Rodriguez: Oh I'll go to the checking cash system and say, "Can I have a money order for such an amount?" Vigeland: And what did they charge for that? Rodriguez: They charge one percent. Vigeland: Did you add up those fees as you went along and add up what you were paying? Rodriguez: Not really.
She got a job recently and her employer told her about Bank on LA, which matches unbanked clients to special beginner bank accounts.
Cesar Trelles: They are what we call "second chance accounts."
Cesar Trelles is a community development officer for Union Bank. He helped place Rodriguez with one of the bank's divisions called "Cash and Save" that weans people off check cashing services and into mainstream banking.
Trelles: As you establish, reestablish the relationship and you show a cleaner behavior, you will get a second chance again, once you can show that you want to do it right this time.
But of course the customers are only part of the overall unbanked problem.
Sofia Heller heads up economic development in the Los Angeles mayor's office. She says banks need to realize that they're competing with services that are predatory, but the appeal is that they're also easy to use.
Sofia Heller: One of the advantages of payday lenders, if you ask somebody who uses it, is transparency there. They walk in, it's like a menu, I cash a check, I pay this. I don't pay in 30 days, I pay this. Banks don't tend to offer that same level of transparency and that's what they're looking for.
Of course it's also hard to learn how to use an account when there aren't any banks around.
Manuel Pastor is a USC professor who authored a report laying out the case for Bank on LA. He found that lots of banks simply don't think they can make money in these neighborhoods.
Manuel Pastor: There's this whole notion that if there was a penny on the ground, why wouldn't it be picked up, right? But I think that often the banks find it very difficult to visualize a whole bunch of low-income consumers as being a vibrant market, but in fact they can be.
The community of Pacoima, north of Los Angeles, is an example. Six years ago, a single small bank served a population of more than 60,000 people. Then a Wells Fargo branch opened.
And Veronica Padilla of the ICON community development group says it's been a boon for both consumers and the bank.
[Veronica Padilla: They're open seven days a week, they stay open past 6 o'clock, it's in a small shopping center, where the traffic is out of control on Fridays evenings with the clientele. So they're really realized that there is money here.
Wells Fargo declined to comment. But we did talk with one of its newest customers.
Julieta Velazco learned about the bank's offerings through a Bank on LA workshop at her daughter's school. Afterwards, she went to Wells Fargo and opened a checking account.
Julieta Valezco, through a translator: I work a lot with the parents and they trust us and their fears are not having an ID and not being completely informed. The parents are completely unaware of how much money they can save, as opposed to going to a liquor store and paying a percentage to cash their checks. Using a bank is a way of saving, which most of them do not understand.
Back in Boyle Heights, there is non-stop activity at the lone Bank of America ATM.
Matt Fellowes of the Safe Banking Project says it's a scene that's playing out in 60 cities across the country that have Bank-On programs. He says consumers are realizing that despite the headlines of the past year, banks are still safer and cheaper than the payday lender down the street. And banks are learning lessons, too.
Fellowes: Just look at the business that the non-banks are doing in these neighborhoods. They are making about $1.5 billion every year just on check-cashing fees. So there is a phenomenal opportunity here.
He says it's about banks getting comfortable serving lower-income communities. But if being warm and fuzzy isn't enough, how about the profit motive? Ten percent of the population is still unbanked. But that doesn't mean it has no money.
Comments
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From Portland, OR, 07/03/2009
Too bad Wells Fargo and BOA moved in and were accepted by the populace, as these guys are real scumbags with their arcane practices all wth fees! UGH I say!
From Seattle, WA, 06/29/2009
In California, you need to have a checking account to qualify for a payday loan, so I don't understand why this program is taking credit for moving payday loan customers into the banking system, since they're already banked. These types of statements just lead to more confusion on this issue.
Many people choose payday loans instead of paying the multiple overdraft fees they would be charged by their bank.
Adding more financial choices for consumers is an excellent goal, but it should be done without demonizing other industries who are serving the community.
From Tampa, FL, 06/29/2009
Funny how Check Cashers are made to look like “evil villains” for cumulatively earning “$1.5 billion in Check Cashing fees last year” according to the article however, it looks like the banks are some type of charity organization for allowing a customer to reopen their account after they “rack up hundreds of dollars worth of NSF fees”. I don’t personally use a check cashing place however, I have seen friends of mine get charged multiple overdraft fees for over drafting their account then turn to check cashing. Check Cashing places are usually straight forward about their fees and you know up front what your paying vs. using your debit card to find out 3 days later that you have a $35 NSF fee for a $3 charge at the convenience store (actually saw this). How much did banks earn in overdraft fees last year? I’m sure it makes the $1.5 billion in check cashing fees look like small change.
From Burlington, VT, 06/29/2009
Shame on Money Matters and and its affiliated public radio stations! The program had nothing about small town, neighborhood "community banks." AND not a mention of Credit Unions!
From Burlington, VT, 06/29/2009
Oh brother, capitalism rocks, doesn't it?
I heard this segment, listening in on Vermont Public Radio while in my car. I nearly had an accident, it got me riled.
The program was straight from the PR departments of commercial banks - several of which underwrite public radio programming. In light of negative press about the zombie bankster bailouts of the past year, this was not as positive a program as the bankers would have hoped. Banks are not caring institutions; they want to make a profit and will do anything to attract customers, even by using deceptive marketing in lower class neighborhoods.
A few telling quotes from the program: "He found that lots of banks simply don't think they can make money in these neighborhoods."
"But I think that often the banks find it very difficult to visualize a whole bunch of low-income consumers as being a vibrant market, but in fact they can be."
"The mayor's office says its goal is to add 10,000 people to the banking system and get them away from predatory lenders, like check-cashing storefronts, payday loan outfits and even liquor stores.."
Say what? "Predatory lenders"!!!??? Can we say "Pot calling the kettle black."
06/28/2009
I'm glad we're looking into the struggle many communities face when attempting to find and comprehend banking options. But since we're discussing the specific needs that many of these communities have - transparency, knowledge on the parts of tellers and bank employees of local issues (language barriers, lack of IDs, etc.) and so on, it seems remiss to not also talk about how local banks, not national chains, would likely serve these communities better.
Re-envisioning our economy after the Wall Street debacle should mean taking a good look at a system which we now know very well can and does fail. Banking at the community level, whether with credit unions, local banks, and so on, has wide implications beyond helping an individual learn to bank well. It also has the potential, much more so than a huge chain bank with little investment in any particular community, to support local businesses, start-ups, community projects, and so on, since local banks are much more likely to invest in the local economy.
I'm interning with YES! Magazine right now and the latest issue, "The New Economy," is full of stories about local banking and other ways to re-shape our economy to the benefit of people and planet; since I'm paraphrasing a lot of that content, I'd recommend checking their publication and/or website out. Thinking outside our old framework these days is definitely needed!
From Seattle, WA, 06/27/2009
Yeah for progress!! This info should be distributed to multi-language TV and radio station, schools of every level, translated in a couple of languages. So many poor people who might be illiterate depend on their school age children for community information and translation. When I was an office manager for a firm that employed many minority, often illiterate worker, I visited the bank our payroll checks were drawn on, the nearest branch to our company and introduced a couple of our workers: 1. It removed the unknown for the workers and 2. It put faces on the people who make the bank successful. Word spread to other workers. Yeah!
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