Banking on the previously unbanked

Tess Vigeland Jun 26, 2009

Banking on the previously unbanked

Tess Vigeland Jun 26, 2009


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.

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