BRIAN KOSS
Grassroots approach
There are plenty of names – unbanked, underserved, nontraditional – to describe one of the largest, most elusive pools of potential new bank and mortgage customers. But whatever moniker you use, bankers and lenders are keenly aware there is still an untapped source of growth that can perhaps be reached with the right specialized programs and products.
Citizens Bank recently introduced a wire money transfer service at a nominal fee for immigrant customers, while Countrywide Home Loans, a top lender to minorities in the United States, recently unveiled its Optimum Loan Program for individuals who don’t meet traditional guidelines to qualify for a conforming loan.
“One reason we have more interest in the immigrant market is that we have many more immigrants and far better ways to deliver financial services to them across the world,” according to Boston bank attorney Stanley Ragalevsky, a partner at Kirkpatrick & Lockhart. “It is far easier today to send money to an immigrant’s family in his country of origin than it was just 10 years ago. Banks and other financial institutions have realized this and stepped up their efforts to fill this need.”
Ray DeSilva, senior vice president and community region manager at Citizens Bank, said while other banks are trying to sell second and third bank accounts to existing customers, he sees the emerging immigrant and minority customer base as an opportunity for Citizens Bank.
Ragalevsky notes that Wal-Mart obtained licenses for check cashing and wire transfers and said it isn’t unreasonable that more traditional banks would also see opportunities along the same lines.
DeSilva said Citizens Bank of Massachusetts views reaching out to underserved populations not only in terms of community reinvestment, but also as a critical growth area.
“The Latino community is becoming the fastest-growing segment in the state,” said DeSilva.
While most lenders and analysts say specialized products geared toward underserved populations have been around for some time, the latest influx of new offerings is likely related to one thing – lenders are expecting loan volume to be less intense as interest rates rise, said Ragalevsky.
“Various people in financial services are looking for new markets where they can generate new revenue,” said Ragalevsky.
The wire transfer service that Citizens Bank is offering has a $10 fee and money can be sent to more than 140 countries. Other wire transfer fees can range from 9 percent to 15 percent of the amount sent. In 2000, Citizens Bank offered the wire transfer service to Cape Verde to meet a growing need in Dorchester, which has a large immigrant population from the island.
A research project conducted by the University of Massachusetts in 2002 showed that major wire transfer companies have reduced their rates by more than 40 percent since 1999 because banks have created competition by offering lower fees.
DeSilva said immigrants are some of the most attractive potential bank customers in the state.
“They are a significant addition to the Massachusetts economy,” said DeSilva. “We open more checking accounts in the immigrant market than any other market.”
The wire transfer service requires that the customer have an account with Citizens Bank and DeSilva said many new customers look for additional services once they begin banking.
Ragalevsky said that because check cashing is generally only done for account holders at most banks, some unbanked people skip the bank altogether and use check-cashing services, which costs them a percentage of their check.
Ragalevsky said many unbanked people don’t use financial institutions because they live paycheck to paycheck and don’t have a long-term savings strategy. Others, he said, assume they can’t benefit from a bank because they don’t have perfect credit.
“They need more basic services,” said Ragalevsky.
He said check cashing, money orders and simple savings accounts are services for which many of these people are looking. However, Ragalevsky said that hasn’t always been what financial institutions want to sell them. He said budget management and credit repair are also important services to offer.
The Countrywide Home Loans’ Optimum Loan targets borrowers with nontraditional credit history, cash on hand or pooled funds and income from secondary sources, such as childcare or cleaning services. The program uses its own specialized credit scoring program.
“It’s for people who don’t fit a standard [income verification] guideline,” said Brian Koss, regional vice president of Countrywide Home Loans.”
Similar to Citizens Bank, where their latest product isn’t the first attempt at targeting nontraditional consumers, Countrywide Home Loans began offering affordable lending products about 10 years ago, when they launched House America. The program allowed for a low down payment that would appeal to low-income borrowers.
But is there more risk for the lender when they aren’t able to check someone’s credit history by traditional methods?
Frank Penzo, branch manager of Countrywide Home Loans in Jamaica Plain, says no.
“With this type of person, you see everything they have,” said Penzo.
Attention Grabber
Penzo reviews payment history on rent, utilities and telephone bills in order to establish a credit history for certain customers.
“You get a deep look into a person’s way of life,” said Penzo.
Koss said the Optimum Loan Program actually lets the lender get to know more about the borrower because they see their assets and income than would normally be the case with automated underwriting.
“It’s good old-fashioned what bank lending used to be,” said Koss.
At Citizens Bank, establishing initial credit takes slightly longer. DeSilva said customers are given a secured loan or credit card and, after a few months, they have built up some credit.
Before these specialized loans and other services were offered, what did immigrants or those with a nontraditional credit history do?
Koss said they were offered loans with higher rates or placed in a riskier category. In the past, many consumers had to deal with a larger down payment or a rate that could be 2 percent higher than the norm.
DeSilva said Citizens Bank always knew this other market existed, but the key was to find people who spoke foreign languages to service customers better. Now various Citizens Bank branches are staffed with people who speak languages other than English.
Even though these new services and loans may be available, Ragalevsky said that doesn’t mean people will come running.
“There’s an educational problem,” Ragalevsky said. “People [from other cultures] may be suspicious of banks.”
The research project conducted by the University of Massachusetts found that many Latino immigrants had a general distrust of banks. The research also noted that the surveyed financial institutions found personal interaction and being a visible force in the Latino neighborhoods was necessary to serve the community. This included financial education and job-site banking services and ATMs.
Koss said letting people know products are available from reputable lenders is the part of the process. While he said it will take time to educate people, Countrywide Home Loans is getting out to churches and community centers to inform people of their new loan.
DeSilva said that despite common misconceptions about immigrants, many are highly educated and gainfully employed and just need to establish credit. Ragalevsky said there is no reason to assume that people with less income take their finances less seriously than someone with a higher income.
Typical of the customers to whom Penzo has offered the Optimum Loan Program are young Latino families with one or two children.
Ragalevsky expects this trend will continue as time goes on.
“You will see more institutions turning their attention to this area,” he said.
