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'Unbanked' and on the Financial Fringes

 
Few options for those who cannot get a bank account

Joey Macias has lived without a bank or credit union account for more than a year. To pay his bills, Macias, a 45-year-old San Francisco resident, waits for his unemployment check to arrive in the mail and then cashes it at a Market Street branch of Money Mart, the international money-lending and check-cashing chain. He keeps any leftover cash at home or in his wallet.

Macias did not always handle his finances this way.

“I had a dispute with BofA, so now I come here,” he said outside Money Mart on a recent afternoon, referring to Bank of America.

Macias stopped banking after losing his job and incurring debt, which in turn led to bad credit. For now, fringe financial companies — businesses like check cashers, payday lenders and pawnshops that lack conventional checking or savings accounts and frequently charge huge fees and high interest for their services — are the only places Macias can cash his paychecks and borrow money.

Macias is not alone in his difficulty in maintaining or getting a bank account: 5.7 percent of San Francisco households lack conventional accounts, according to a 2009 survey by the Federal Deposit Insurance Corporation.

Over the past few years, the issue of “unbanked” people has come under increasing scrutiny. In response, Bay Area governments have created a number of programs to increase options for those without accounts.

Lacking a bank account imposes limitations on a person’s financial options, said Greg Kato, policy and legislative manager of the Office of the Treasurer-Tax Collector in San Francisco. He said that check-cashing fees at the fringe institutions could total $1,000 a year and interest rates for loans are as high as 425 percent. And there are related issues: those without a bank account cannot rent a car, buy plane tickets online, mortgage a house or make any purchase that requires a credit card.

“Without a checking or savings account, you’re basically shut out of most affordable financial services,” said Anne Stuhldreher, a senior policy fellow at New America Foundation, a nonprofit public policy organization.

According to surveys conducted by the San Francisco treasurer’s office in collaboration with nonprofit groups, there are a number of reasons people do not have bank or credit union accounts. These include an inability to afford bank fees, bad credit histories that bar people from opening accounts and being misinformed about the need for government-issued identification to open an account.

Not surprisingly, low-income people are disproportionately unbanked: the national F.D.I.C. survey from 2009 found that about 40 percent of unbanked people in the Bay Area earn below $30,000 a year, and Latino and black residents are most at risk of not having an account. This echoed research from 2008 from the Brookings Institution, a public policy think tank, finding that most of San Francisco’s estimated 36 payday loan stores and 104 check cashers are concentrated in low-income, Latino neighborhoods.

The City of San Francisco has two programs meant to help more people open traditional bank accounts. Last year, it started CurrenC SF, a program aimed at getting businesses and employees to use direct deposit. Bank On, a program developed in San Francisco in 2006 and now used nationally, gets partner banks and credit unions to offer low-risk starter accounts with no minimum balance requirements.

But efforts at curtailing the growth of fringe banking have been met with a strange paradox: national banks like Wells Fargo are also financing fringe institutions. The San Francisco-based Wells Fargo, for instance, headed a group of banks giving DFC Global Corp., the owner of Money Mart, $200 million in revolving credit, according to federal filings.

In an email, a Wells Fargo spokesman defended its actions: “Wells Fargo provides credit to responsible companies in a variety of financial services industries.”

But even with the exorbitant fees and sky-high interest rates, the fringe financial shops do provide much-needed services. Outside Money Mart, Macias said that he wished banks gave him products similar to the check-cashing operation.

Stuhldreher agreed.

“There’s a lot financial institutions can learn from check cashers,” she said. “They’re convenient. Some are open 24 hours. Their fees are too high, but they are transparent.”

This article also appears in the Bay Area edition of The New York Times.

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