Banking for the urban poor
TESS VIGELAND: We’re in the thick of earnings season, and so far it’s been a good one for corporate America. Especially the banks. Citigroup posted an 18 percent jump in second-quarter earnings, 20 percent for JP Morgan and a whopping 24 percent for Wachovia. ‘Course, many of them were hit by this week’s market drops.
But most of us do use banks as a place to stash our money. And it’s hard to imagine not having access to one. Urban neighborhoods have traditionally been under-served by the banking giants. In some areas of the United States, you can go miles without finding a branch. Francesca Segre reports on a push to change that.
FRANCESCA SEGRE: At a strip mall in the Watts section of Los Angeles, there’s a supermarket, a grocery store and a public library. The community is predominately African American, and the average yearly house hold income here is under 18,000.
What’s missing from this shopping center is a bank. Instead, there are two check-cashing businesses in the strip mall.
No surprise really. The Ford Foundation reports that there are 22,000 Payday loan shops in the United States. That’s more than the number of McDonald’s franchises nationwide.
Meanwhile, the number of regulated banks in low-income communities is flat. That’s according to John Taylor. He’s the CEO of the National Community Reinvestment Coalition.
JOHN TAYLOR: When you don’t have full-service, mainstream bank branches, the ones who replace them are these . . . many of them are subprime, often . . . too often predatory, high-cost lenders who end up offering only products that, you know, are really designed to strip wealth and not designed to help the person.
There are plenty of factors keeping traditional banks away from these urban communities. There’s the crime risk — and then, Taylor says, there’s business.
TAYLOR: Banks would rather make a million dollar loan to one person than 10 hundred-thousand dollar loans, because financially it’s more economically feasible for them. Instead of 10 transactions and 10 files and 10 meetings with loan officers, there’s one.
But the people in the community aren’t necessarily sold on the usefulness of banks either.
Lincoln Bostick is the assistant manager for Operation Hope, which has a branch in Watts.
It’s a nonprofit that teaches people about managing their money. He says all too often, young people here spend what they have on expensive shoes, car rims, jewelry and the like — anything to alleviate the reality of poverty.
LINCOLN BOSTICK: Because of the high incidences of crime and violence in the community, many young people, if you were to talk to them, well they would say, “Well I don’t even believe Imma live to be beyond 18, 20, 21 years of age.” And so therefore, they don’t set any dreams. They don’t set any goals for themselves.
And that means they don’t need a bank account. But Operation Hope is trying to change that mentality.
Christopher Wilson came to the program after a bad banking experience as a teenager. He says he got slammed with $150 in fines in less than three months. Now, he’s 23, holds down a steady job, and responsibly manages his three bank accounts. But getting others to see the benefits of banking isn’t easy.
CHRISTOPHER WILSON: I had a conversation with my mom this morning, matter of fact. She does not have a bank account because of the fear of hidden fees.
And that’s a fear that Robert L. Johnson, the founder of Black Entertainment Television, hopes to alleviate in establishing Urban Trust Bank. It’s headquarters are in Washington, D.C. and it’s designed with the African American urban client in mind.
Dwight Bush is the CEO of Urban Trust Bank:
DWIGHT BUSH: From a physical presence perspective, banks can be very intimidating. Our branches have more of a retail feel. So you feel more like you’re at a Gap or a Container Store or a Best Buy — or an environment in which any other retail-oriented environment in which consumers feel welcome.
Urban Trust is less than a year old and it intends to take advantage of the fact that nearly 21 percent of American households don’t have bank accounts. Of those, about half are African-American.
BUSH: Now, it’s a great time to enter the market. Because when you look across the landscape of urban America, we see that the growth in the population between Latinos, African Americans and Asian-Americans is exceeding the growth rate in the general population. You also have a group of people who have more buying power, more earning power, more of an interest in creating and retaining wealth in their communities.
Urban Trust intends to open more than a dozen branches within the year. But planning the company’s future is one thing. Convincing people to plan for their own future is something else entirely.
In Los Angeles, I’m Francesca Segre for Marketplace Money.
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