Banking on city's poor

May 10, 2002|By Steven Soifer and Deborah Povich

WHAT DOES Baltimore lack that Chicago, Cleveland, Detroit and Washington have? Those cities, and others, have community development banks that help revitalize inner cities.

Baltimore's previous attempt to get one fell flat on its face about five years ago because of a lack of capitalization. Given the financial trends in Baltimore City, this is both shameful and devastating to the city's poor.

The result? A startling level of disinvestment leaves residents able to pay bills but with no way to save for the future. Lacking access to mainstream banks, residents are forced to use fringe financial services such as check cashing outlets (CCOs). CCOs do not offer the key services necessary for people to work their way up the economic ladder.

Until recently, payday loans were the only service besides check cashing that the CCOs offered; these services were unregulated and charged usurious interest rates. The enforcement of the state's small-loan law has decreased the amount of payday lending in Maryland. But, unfortunately, nothing has increased the number of mainstream financial services in low-income neighborhoods. Poor people deserve access to the tools that will turn their lives around - savings and lending programs that allow assets to grow.

Over the past few years, Maryland has lost many home-grown banks to out-of-state mergers, including First Fidelity, Maryland National Bank, the Bank of Baltimore and Signet Bank. As a result, fewer low- to moderate-income people have access to mainstream financial services since these mergers have meant branch closures and consolidations.

In 2000, for every three bank branches in Baltimore there were two CCOs. Even this gross count is misleading because the number of CCOs in the city includes many liquor stores, pharmacies and other businesses offering fee-for-service opportunities. This trend will not ease soon since CCOs provide check cashing, bill payment and convenient hours to many financially challenged people.

CCOs fill a gap in services, but at a high price. Paying fees to cash each paycheck and then additional fees to pay bills results in the loss of much-needed monthly income. The cost of operating a basic bank account, if there were a bank in the neighborhood, is less.

Looking at the distribution of bank branches and CCOs by race and class, the picture gets even more disturbing.

In areas with high concentrations of people of color, CCOs are at least as prevalent as bank branches. In particular, on the city's west side, which has a population that is 90 percent non-white, there are 18 CCOs and only 12 bank branches.

There are few, if any, CCOs in higher-income areas but quite a number of bank branches. The reverse is true in low-income areas. In two communities on the west side - Sandtown-Winchester and Washington Village/Pigtown (empowerment zone areas) - only one bank branch and one CCO exist in each area, and both are located on the outskirts of those communities.

The city should examine strategies to support the creation of a community bank and ways to entice branches of mainstream financial institutions back into poor areas.

Such strategies include linked deposits - programs that link public sector deposits to the financial institutions that address a public need. Baltimore could target the deposit of some of the hundreds of millions of city taxpayer dollars to banks that open branches in underserved neighborhoods or set aside a deposit for a community bank.

Once planted, this investment seed could grow to meet the financial services needs of our residents. Neighborhoods such as Cherry Hill, Washington Village/Pigtown, Sandtown-Winchester and Irvington would benefit from such proactive efforts.

Investing public dollars can increase banking facilities in the city. We must do this. Otherwise, the future may see only one bank in the city with branches in stable and well-to-do neighborhoods, leaving the rest of the residents prey to a host of unsavory financial alternatives.

Steven Soifer is a professor at the University of Maryland School of Social Work, and Deborah Povich is director of public policy at the Maryland Center for Community Development.

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