Making Bank

One brief bit of self-promotion: I wrote this piece for TAP’s June issue over several months this spring, and it’s — if I may so myself — a good look at an economic problem that is sincerely under-appreciated.  I hope you’ll give it a read.

Melrose, Bronx, is a world away from Wall Street, nearly 40 minutes north on the subway. Where the financial district’s bustle is contained within antiseptic lines of concrete and glass, here the skyline is lower and the storefronts colorful and haphazard; more people are on the street, buying and selling at sidewalk stands. A third of the neighborhood’s residents are unbanked, and half are low-income. In the eight blocks between the subway and the OFE’s local outpost, I count some six check-cashing stores and pawn shops. But there are just as many branches of regular retail banks scattered through the neighborhood.

The conventional wisdom about the unbanked is that they simply don’t have access — that banks don’t invest in neighborhoods where poor people live, and therefore poor people don’t have bank accounts. But a recent study of consumer finance in Melrose and in Jamaica, Queens, conducted by the Department of Consumer Affairs, turned up some counterintuitive conclusions. In Melrose and Jamaica, as in other places, there was no correlation between the number of bank branches per capita and the number of people with bank accounts.

That leaves another hypothesis: It’s not the access; it’s the products. The savings and checking accounts offered by banks weren’t meeting the needs of the residents of neighborhoods like Melrose and Jamaica. Low-income New Yorkers don’t need online bill payment, they don’t have direct deposit, and they are often the victims of overdraft fees that are poorly explained and nearly as usurious as the check-cashers’ policies. What they need is clarity, speed, and reliability, which are all things the check-cashers provide, at a cost. The 110,000 residents of Melrose and Jamaica are estimated to spend some $19 million per year in check-cashing fees alone.

It may seem obvious, but overpaying for consumer credit is a critical obstacle to escaping poverty. That isn’t the only downside of participating in the fringe financial system. At the most basic level, it’s not as safe; keeping cash on hand invites crime and makes a mugging or a robbery a devastating financial experience. Without savings and a bank account, it’s hard to build a credit score that would support a home or automobile loan that isn’t predatory; it can even be difficult to access rental housing. It can also be harder to get a job now that employers have started checking applicants’ credit scores as part of their interview processes. Even getting a cell phone is complicated with bad credit. This is a problem that affects low-income people generally and minorities in particular: Federal Deposit Insurance Corporation studies find that nearly 8 percent of Americans are unbanked, including nearly one-fifth of black and Hispanic households.

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