That's why the city is trying to educate the inexperienced on the cost benefits of traditional banking, says Jonathan Mintz, the commissioner of the city's Department of Consumer Affairs. The city has also had to convince banks that it's worth it to attract lower-income customers.
"It's a stepping stone that people on both sides of the table won't regret," says Mintz. To make that step surmountable, the city started NYC SafeStart Account at the beginning of 2010. Ten banks and credit unions, including Capital One and Amalgamated Bank, now offer a simple, understandable account. There are no overdraft fees and no monthly fees, provided customers keep a minimum balance of $25 or less. Mintz says it's too early to tell how successful the program is, but he's encouraged by early signs.
One of the participants in SafeStart, CheckSpring, is something of a hybrid financial institution. It opened its doors in the South Bronx in 2008, offering a wide array of traditional banking services for depositors in addition to normal check-cashing services for customers coming in off the street.
CheckSpring's executives saw that traditional banks were ignoring the needs of potential customers. "There's something wrong when supposedly predatory check-cashing stores are right across the street from a big commercial bank and people still choose the check-cashing store," said Brian Blake, an assistant vice president of marketing.
CheckSpring has several programs designed to coax people into mainstream banking. Its check-cashing customers can place half of the check-cashing fee they pay in a savings account that's accessible to the customer when the balance reaches a certain dollar amount. CheckSpring also participates in $aveNYC, a city program in which lower-income tax filers can earn 50 cents for every dollar of tax refund they save.
Financial incentives are important for bringing lower-income people through banks' doors. But until more banks have enough faith in the market to offer better services to the poor, and unless the unbanked get comfortable with banks, lower-income neighborhoods are unlikely to be well-served by the traditional financial sector. Says Peter Bray: "We have to create trust."
