For four decades, government and non-profit agencies have urged residents in poor neighborhoods to use banks instead of check-cashing outlets and mattresses for their banking. And for decades, such residents have resisted, saying banks are pricey, scarce and inconvenient.
Now, a South Bronx non-profit organization, Morrisania Revitalization Corporation, in the nation’s poorest Congressional district has opted for a new tack: Starting this month, it will offer financial literacy classes that advise locals to open accounts not at banks but at credit unions. They provide financial services more cheaply than banks. In poor neighborhoods like Community District Three in the South Bronx, credit unions are also more plentiful.
The shift in message is not unique to the non-profit that will offer the free four-hour classes. Experts likewise agree that given banks’ increasing fees and continued avoidance of poor neighborhoods, credit unions are a better alternative, particularly in areas like the Community District Three, where non-traditional financial institutions, like credit unions, outnumber banks 5:1.
The non-profit’s director of development, Mario Bodden, said the curriculum would explain how to manage checking accounts, when to ask for what kinds of loans, and what credit unions are. Bodden said he would definitely encourage people to open accounts with the credit unions. “They are more accessible. There are no banks around here.”, Bodden said. The classes are funded by the non-profit organization and should begin this month, Bodden said. They will be held once a month.
Since 1998, New York State has offered banks incentives to open in poor areas through the Bank Development District Program. The bank benefits from real property tax breaks starting at 50 percent and petering out to 5 percent by the 10th year. The branch receives an initial deposit of $10 million and the branch can renew the deposits on an annual basis. Each branch in a bank development district is required to submit a renewal application every year and the state assesses how well the branch is performing. Based on that, the state renews or withdraws the deposit, or puts the branch on probation.
“Once a BDD is established, a bank is not required to open more branches in the district,” said Ronald Klug, a spokesman for the state insurance department in Albany, “but banks are encouraged to open additional branches if there is a need.”
There is a need, according to city government analyses.
The New York State Department of Consumer Affairs concluded in a 2008 study that poor neighborhoods like Melrose in Community District Three are short of banks, even though 17 percent of its adult residents have annual incomes exceeding $40,000. Households in Melrose are inclined to save money, according to the study, which was conducted by surveys. David Weiman, professor of economics at Barnard College, said he was surprised so few banks are in this area. “You would expect more banks in an area where people make more than $35,000,” Weiman said.
Residents and small-business owners in the area say having no nearby bank inconveniences them. Marcela Lucero, 34, sells flowers in her brother’s flower shop on Kelly Street and Longwood Avenue. The shop grosses about $200 cash a day. It also accepts debit cards, but most people pay in cash. To deposit the earnings, Lucero has to travel about 20 blocks to The Hub, the trade mecca of the South Bronx at 149th Street and Third Avenue. She’s a tiny Mexican woman and though she’s never been robbed, she is afraid it may happen one day. So she waits till Sundays to deposit the money, $1,400 in all on average, because that’s when her husband can accompany her for protection.
“It’s dangerous to carry cash in the neighborhood,” Lucero said. “If there was a bank around here, I would close the store for five minutes, deposit the money and open right away. I’d feel more secure.” Lucero said opening an account with a credit union would be beneficial because fees are lower and the branches are closer to the shop. She would not have to go all they way to The Hub and, therefore, close the flower shop for a few hours.
The New Covenant Dominion Credit Union on Boston Road and 167th Street serves about 270 residents from the Community District Three, where Lucero’s shop is located. The union’s branch and closest ATM are about 10 blocks from the shop. Since January 2011, approximately 50 new members from the area joined the union, said Bishop Joseph A. Alexander, chair of the credit union board. “We are here because banks aren’t,” Alexander said.
About a mile from the flower shop, Arieo Gonzalez, who works at a Used Cars Dealer on Washington Avenue and 167th Street, has a similar take. Last month, he sold a Honda for $2,300 cash. Carrying so much cash in the South Bronx is dangerous, he said, but he had to anyway. “I sold the car on Sunday and had to wait until Monday to go to a bank and keep the money here until then,” Gonzalez said, pointing at the trailer by the gate of the parking lot that serves as the dealership. To deposit the money from the sales, Gonzalez takes the bus three times a week to The Hub, 17 blocks away, where bank branches are clustered. If there were a bank nearby, Gonzales says, he would deposit the money with a teller after every sale, relieved that he wasn’t storing cash in the trailer. Gonzalez said he did not want to use a bank’s ATM because banks charge a fee for every deposit.
Another credit union covering the district is Municipal Credit Union. It has eight ATMs in the neighborhood and serves 16,685 residents.
The third is Bethex Federal Credit Union, chartered by the government to serve Community District Three. Bethex has contracts with cash checkers in the area, allowing the union’s customers to deposit checks into their union accounts without cost, said Joy Cousminer, president and chief executive officer of the credit union. Bethex is working with Bodden to install an ATM near the Morrisania Revitalization Center if it has a lot of traffic and enough people from the area either become members or already use credit unions. “We are working on finalizing the location,” Bodden said.
There is no question that the South Bronx is an underserved community, said Prof. Linda Allen, chair in banking and finance and the Zicklin School of Business at Baruch College. “It may be the case that the community is even profitable, though not a lot for a bank,” she added. “But banks are not in a position to respond to it until the financial crisis is finally resolved. The banking community is very flush with funds, but is not spending it, because they’re afraid of the risks. They are very defensive. This is the worst time to look for a remedy in expansion of banking,” Allen said.
Efforts to address the lack of banks in poor neighborhoods are not new. The federal Community Reinvestment Act of 1977 was designed to encourage banks to open branches in such neighborhoods, and to meet credit needs regardless of borrowers’ income. It prohibited redlining, the practice of denying loans or increasing costs for residents of racially defined neighborhoods. The law, however, has limited reach. It’s enforceable when a bank aims to take over another bank, at which point the federal government checks on the bank’s adherence to the law. “That’s the leverage the Fed has,” Weiman said, noting that the Fed doesn’t usually monitor on a regular basis. “When banks need approval, the Fed will then enforce the CRA conditions. If banks aren’t merging at the moment, the Fed will not enforce.”
Even though people come to credit unions, many might still go to banks if they had a chance, Cousminer said. “I had an employee who was working with me as a volunteer when we started the union. Just a few weeks ago she said to me, ‘I’m closing my Bethex account. I now have a job and can open a bank account.’ This rational still exists. Poor people dream of having a bank account.”
Citibank was the Bank Development District branch for Community Board Three until 2007. It is still one of the two banks in the area serving nearly 83,000 people.