San Francisco Chronicle, December 4, 2007: Program helps low-income S.F. residents start bank accounts

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Wyatt Buchanan, Chronicle Staff Writer

For three decades, Virginia Johnson – who is 71 years old and lives on a fixed income – spent nearly $200 a month to have her Social Security checks cashed and money orders prepared to pay bills for herself and her disabled grandson.

Johnson relied on check-cashing outlets along Market Street for these services because she did not qualify for a traditional bank account. And every month she felt she was taking her life in her hands when she walked out onto the street with wads of cash in her pocket and made her way back to her room at a residential hotel, where she worried about being robbed.

Johnson belonged to one of the estimated 50,000 “unbanked” households in San Francisco until March, when she took advantage of a program called Bank on San Francisco, in which the city, the Federal Reserve, and 15 banks and credit unions partnered to put checking and savings accounts within closer reach of the urban poor.

“You don’t have to worry about somebody snatching money from you when you come out of the check-cashing place – or losing it,” Johnson said of how her life has changed after joining Bank on San Francisco, which many see as a model local response to a national problem.

Her checks now are direct-deposited, and she gets five free money orders a month from her bank. Johnson also puts money in a savings account now and can treat her grandson and herself to a meal in a restaurant once in a while.

“I don’t have to worry about the money,” she said. “It’ll be there when I need it.”

Since Bank on San Francisco began in September 2006, more than 11,000 people have opened accounts, and cities across the country are paying attention. New York, Boston, Chicago and Atlanta have contacted San Francisco officials about the effort. Los Angeles and Seattle are taking steps to create similar initiatives, and the National League of Cities is encouraging other cities to adopt the model.

San Francisco also is trying to curtail the prevalence of check-cashing outlets and payday loan stores through legislation passed three weeks ago that severely restricts the ability of these businesses to expand in size or open new locations. The money outlets, which city officials refer to as predatory lenders, charge customers high fees to cash checks and high interest rates on short-term loans.

Moreover, a new ordinance to offer a city identification card to all San Francisco residents – regardless of whether they are in the country legally – was in part motivated by a desire to make it easier for low-income people to open traditional bank accounts.

“Bank accounts are essentially an on-ramp to economic mobility and wealth in this country,” said Matt Fellowes, an expert on consumer finance with the Brookings Institution. “Without access to that on-ramp, people are basically living in a cash economy where there’s no opportunity to convert that into wealth.”

Under the program, the institutions charge reduced or no fees to open accounts, waive monthly minimum balance requirements, eliminate certain overdraft charges, and accept government cards from Mexico and Guatemala as principal identification.

One of the city’s requirements for banks to participate is to forgive past financial mistakes – such as bounced checks – and open accounts for people who otherwise might typically be blocked from doing so.

“For many financial institutions, this is a drastic change in their policy,” said Anita Macias, senior vice president for corporate planning and communication with San Francisco’s Patelco Credit Union, which is participating in the program.

The impetus for the Bank on San Francisco program grew out of another city effort to help the poor with personal finances.

In 2005, city leaders believed they could encourage low-income residents to apply for the federal Earned Income Tax Credit by giving bonuses to those who applied in the form of a check for 10 percent of the federal credit.

More than 10,000 Working Families Credit checks were sent out in the first year, but many of the people receiving those checks did not have bank accounts and cashed those payments at check-cashing stores, said city Treasurer Jose Cisneros.

“It tore me up that people were taking $100 or $200 checks to check-cashing stores and were losing upward of $30 to $40,” said Cisneros, who led the creation and implementation of the Earned Income Tax Credit incentive and Bank on San Francisco programs.

“The goal was to help families, not for them to get ripped off,” he said.

Soon after those first checks went out, Cisneros convened a meeting of banks and credit unions in the city to address the lack of savings and checking accounts, which is where the Bank on San Francisco idea took form.

To the surprise of many observers who had thought large financial institutions would not be motivated to reach out to low-income customers, the banks and credit unions showed keen interest, Cisneros said, and held meetings with the city to establish requirements for the new accounts.

The Federal Reserve participates by collecting data on the accounts – monitoring average minimum balances and overdraft incidents – and the financial institutions are able to use their participation to meet a federal requirement that they do work in low-income communities.

Bank and credit union officials said the program also allows them to trumpet one of their industry’s altruistic goals: helping people become financially successful.

“This is about giving people a fishing pole instead of giving them the fish,” said Lisa Stevens, president of the Bay Area region for Wells Fargo & Co.

Bank on San Francisco accounts are now available at many large, medium and small banks and credit unions. And the average monthly balance of the accounts has increased since the program started, from just under $718 last year to about $850.

As the program began taking shape, city officials also looked at other ways to clip the wings of check cashers and payday lenders, which they viewed as preying on poor and marginalized residents.

The outlets had multiplied throughout the city in the past decade, largely in poorer areas like the Tenderloin, the Mission and parts of South of Market. There were so many – 112, according to the city Planning Department – that officials created the category of “fringe financial services” in city planning regulations.

Three weeks ago, the Board of Supervisors voted unanimously to put tight limits on their proliferation by limiting how closely they can be located to each other and preventing existing outlets from expanding in size. The backer of the legislation, Supervisor Tom Ammiano, said the likely effect will be to freeze the number of these lenders where it currently stands.

“They really do take full advantage of wage earners who can’t open a bank account,” said Ammiano, whose district includes much of the Mission District and has the city’s highest concentration of such businesses.

Leaders in the check cashing and payday loan industry bristle at the suggestion and say the proliferation of these businesses is a standard response to demand and an unmet consumer need.

“As people move up and down the financial ladder, we serve needs better than a bank might, and at other times a bank serves needs better,” said Edward D’Alessio, an attorney with the Financial Service Centers of America, an industry group. “If there is no need, there will not be a business.”

The industry numbers about 13,000 such stores nationwide and executes about 350 million transactions a year, according to D’Alessio. Those transactions total about $106 billion, he said, and some 30 million people use the services each year.

Richard Lake, CEO of California Check Cashing Stores, which has 95 outlets in Northern California, five of them in San Francisco, said he sees the businesses as part of the solution to financial obstacles facing low-income people.

“We’re disappointed that we weren’t involved or invited” in the Bank on San Francisco program, Lake said, noting that some check-cashing businesses offer a type of account with a debit-like card people can use to access their money.

Check cashers and payday lenders also are facing pressure from new competitors such as retail giant Wal-Mart, which will be opening 1,000 “money centers” in its stores by the end of 2008 to offer low-cost check cashing, money orders and money transfers.

It remains to be seen whether San Francisco’s new law – also written by Ammiano – to offer municipal identification cards will help residents living on the margins open their first savings and checking accounts.

The first of those cards are to be issued in August. However, federal law determines minimum identification requirements for opening bank accounts and it is unclear whether the San Francisco municipal ID card will suffice.

Virginia Johnson said she’s glad she does not have to go back to a check-cashing outlet again and is hopeful the city IDs will help others close to her who are in similar circumstances.

One those people, according to Roy Miller, a caretaker to Johnson, is the 71-year-old woman’s mother, a 94-year-old San Francisco resident who, according to Johnson, lacks both official identification and a bank account. It was Miller who told Johnson about Bank on San Francisco in the first place. He also has brought it to the attention of five other people he cares for and several of his friends.

“Hopefully,” Miller said, “Miss Virginia’s mother will be the first in line to get an ID and (then) an account.”

Institutions participating in Bank on San Francisco

— Bank of America

— Bank of the West

— Citibank

— Mission Area Federal Credit Union

— Mission National Bank

— Northeast Community Credit Union

— Patelco Credit Union

— San Francisco Federal Credit Union

— Spectrum Federal Credit Union

— Sterling Bank & Trust

— Union Bank of California

— United Commercial Bank

— US Bank

— Washington Mutual

— Wells Fargo

E-mail Wyatt Buchanan at

This article appeared on page A – 1 of the San Francisco Chronicle

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