Only a few banks offer services to help the poor

Staying Ahead

June 28, 1999|By Jane Bryant Quinn

THE POOR pay more than the middle class for almost every financial service you can think of. They either lack access to banks, mistrust the banks they see or can't afford the minimum deposits. About 12 million households in the United States do without accounts.

Instead, they patronize "fringe banks" such as check-cashing stores or lenders who advance small sums against future paychecks -- always for high fees. The poor also pay more for money orders, wire transfers abroad, even postage stamps.

A few real banks design services for people living on modest paychecks, but most payno attention.

For community groups in lower-income neighborhoods, banking ought to be the next frontier. These activists worked long and hard to bring more mortgage money to their constituents. Better financial services should be possible, too.

Here are three ways that services are being provided already: Wells Fargo Bank, based in San Francisco, makes small payday loans to California customers of modest means who suddenly find themselves in a tight financial spot.

Borrowers have to be Wells Fargo customers, with paychecks, government checks or other regular deposits wired directly to their bank accounts. As long as they've deposited at least $100 and are good credit risks, they can borrow up to half the deposit with a maximum loan of $200.

They access the loan by telephone or ATM. It's repaid automatically, from the next deposit to reach the bank.

Wells Fargo charges just $1 per $20 borrowed, or $5 per $100. By contrast, the fringe banks charge $15 per $100 borrowed, with fees sometimes climbing as high as $30.

Union Bank of California, based in Los Angeles, offers a broader banking program called Cash & Save. So far, it has opened 15 outlets -- some in bank branches, some in supermarkets, one next to a Burger King.

Cash & Save delivers most of the services needed by the unbanked -- check cashing, money orders for paying bills, wire transfers, utility payments, prepaid phone cards, postage and faxing.

Most checks are cashed for 1 percent to 1.5 percent of the face amount, with a $2 minimum. Check cashers, by contrast, normally charge around 2 percent to 3 percent for government checks and as much as 10 percent for out-of-state personal checks.

Union also offers services that check cashers don't: a no-fee checking account that can be opened with just $1, a savings account you can start with just $10 plus $25 a month, a secured MasterCard and financial counseling.

To get a secured card, customers put $350 into a savings account. That lets them charge purchases worth up to $350. By paying on time, they build a good credit history -- something they don't get from payday loans. Union doesn't offer payday loans. "The costs are too high," Brown says.

Cash & Save covers its expenses, Brown says, and brings new customers into the bank for mortgages and small-business loans. To establish trust among people biased against banks, she works through community groups, and does "a lot of handholding."

Florida Central Credit Union. Credit unions complain a lot about commercial check-cashing fees. Here's one that's doing something about it. Tampa-based Florida Central will open a check-cashing service, probably in August, in partnership with the nonprofit Tampa Hillsborough Action Plan (THAP). It also will offer payday loans, "title loans" against cars and financial counseling.

"You'll find 15 fringe banking facilities in our area, two or three a block," THAP President Chet Luney told my associate, Dori Perrucci. "It became very evident to us that the financial institutions were missing something."

THAP will plant a credit union branch in the check-cashing outlet. Once borrowers join the credit union, check cashing will be free.

Florida Central hasn't yet established its rates, but hopes to offer payday loans for around 25 percent. In Tampa, payday loans currently go for 400 percent and up. "That's financial servitude," says Ed Gallagly, Florida Central's chief.

Credit unions should do much more of this, Gallagly says. "Serving people of modest income is good, sound business."

Washington Post Writers Group

Pub Date: 6/28/99

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