MICHAEL FLAHERTY
Proposed hearing on issue
A Boston city councilor wants to convince thousands of city residents without a bank or credit union account to open one, in the hope it will put them on the path of improved credit and economic opportunities.
“I want to bring Boston’s ‘unbanked’ residents into the financial mainstream so they can begin to save, build assets and enhance their creditworthiness,” explained fourth-term at-large Councilor Michael Flaherty, who on March 7 proposed that the council hold a hearing to determine how many residents don’t have accounts, and figure out ways to bring them “into the financial mainstream.”
The former council president received unanimous support for his proposal and his aides are working to set up the hearing by late March.
Flaherty said he started thinking about the problem of the “unbanked” in general after noticing that many of the 2,000 city teenagers who participate in Boston’s summer jobs program were cashing their checks at non-bank institutions.
“We learned that many of them – and their parents – did not have checking or savings accounts,” he said.
Then he heard about “Bank on San Francisco,” a program that city kicked off last September, designed to help its estimated 50,000 households that don’t have bank or credit union accounts to open one. Sixteen banks and the city have partnered in an effort to change that situation, and to date about 1,000 newly opened accounts have been attributed to the effort, according to Program Manager Leigh Phillips, a senior administrative analyst in the office of José Cisneros, treasurer for the city and county of San Francisco.
Phillips added that seven or eight cities interested in duplicating San Francisco’s effort already have contacted her seeking information on the program.
Flaherty said there are both short- and long-term benefits to more people having basic checking or savings accounts. The benefits, he said, extend to both individuals and the local economy.
For example, accountholders save on exorbitant check-cashers’ fees in the short term. And in the long run, a well-managed bank account can help some of them start building a solid foundation to save for a house, car or their children’s education.
That sort of foundation would, in turn, make those who seek a home mortgage loan less vulnerable to predatory lenders, he added – which would benefit the neighborhoods they live in, as the homeowners there would have stable loans.
Financial institutions, which would get more depositors’ money, would also benefit, he added. The councilor’s next step is to invite executives from those institutions to City Hall to discuss partnership scenarios. Andrew Kenneally, Flaherty’s policy and communications director, said one hearing topic will be whether the city should make it mandatory that summer-jobs checks be direct-deposited into an account at a bank or credit union.
Mt. Washington Bank President and Chief Executive Officer Ed Merritt, whose South Boston-based bank plans to open its fifth branch this fall, in Dorchester’s Codman Square neighborhood – where there are few other banks – said he’d be “very interested in partnering with Michael and supporting this program.”
He, and local industry officials, said they’d also really like to know how many unbanked residents live in Boston.
“I don’t have statistics on how many people use a check-cashing company versus a bank,” Merritt said. “But what I will tell you is that if you drive around certain neighborhoods in Boston and you see a number of check-cashing operations, they’re not there because they’re not profitable.”
He predicted that 15 years down the road, consumers will be more sophisticated and fewer people will use check-cashers, in part due to financial literacy programs Mt. Washington and other banks are considering or sponsoring now.
‘Potential Opportunities’
According to Phillips, the Brookings Institution, a Washington, D.C.-based think tank, volunteered to support “Bank on San Francisco” by counting the number of that city’s unbanked households.
Fifty thousand, she said, is “pretty consistent with what you would assume for urban areas nationally.” The number represents 15 percent of all households in San Francisco, which has a population of about 780,000, she added.
Most “unbanked” people in San Francisco and Boston are new immigrants, who may not speak English well, industry and city officials agreed.
“I think communication barriers might exist,” said Merritt, when asked why he thinks some people don’t have accounts.
There are also cultural barriers, he suggested. “If I grew up in a household where my parents never used a bank, I wouldn’t either.”
Banks are aware that immigrants are one of the few growing sectors of the Bay State’s population. Both individually and through the Massachusetts Bankers Association, they are developing ways to try to reach that population, according to MBA Senior Vice President and Chief Operating Officer Kevin Kiley.
With the Massachusetts Credit Union League, community groups, the Federal Deposit Insurance Corp. and state Sen. Jarrett Barrios, MBA has formed the Boston New Alliance Task Force, whose headquarters are at FDIC, Kiley said. Based on a program created in Chicago a few years ago, the task force’s purpose is to promote banking access to immigrants.
In addition, MBA and MCUL are both offering seminars for the industry on how to reach unbanked consumers. About 25 to 30 bank CEOs regularly attend MBA’s presentations, MBA Senior Vice President for Government Affairs David Floreen said.
Efforts range from offering basic checking and savings accounts to hiring staff who speak other languages, creating foreign language brochures, and initiating new products and services immigrants can use – for example, money transmission or wire-transfer services for those who might be sending money back to their homes regularly, Kiley said.
According to Phillips, “Bank on San Francisco” has attracted some new customers because its bank partners have offered flexible products – such as accounts that don’t automatically close if the balance reaches zero – and are willing to offer accounts to some undocumented immigrants.
They’ve also been open to establishing relationships with customers who may have had accounts closed in the past, she said – for example, those who might have bounced too many checks. There are ways to make such a relationship work, she said. For instance, a bank may allow such a customer to open a conditional, savings-only account for six months to see how it works, before establishing a checking account.
Floreen called reaching the unbanked a “significant issue in the banking world.” He said there’s no question that the majority of them are immigrants.
“Just look at the numbers. Were it not for immigration, we would be losing population,” he said.
Reaching out to them is good business and the “pragmatic” thing to do, he added.
“The point is, you go where there are potential opportunities,” said Floreen.
