Alternative Financial Services (AFS) – check cashing, rent-to-own stores, pop-up tax prep sites and pawn shops - are about equal in number to banks branches in the Bronx. High interest rates and excessive fees, associated with with these services, make it challenging to stay out of debt, let alone build wealth. While banks and credit unions offer financial products and services that can help households avoid excess debt, increase savings, and build credit, more needs to be done to reach low-income communities.
According to the Federal Deposit Insurance Corporation (FDIC) 2015 National Survey of Unbanked and Underbanked Households “Access to mainstream financial services at an insured depository institution provides consumers with a safe place to save, conduct basic financial transactions, and build a credit history and access credit on favorable terms. Banks that provide households with safe, affordable savings options can address a present need and create opportunities for these additional benefits… For example, households with thin or no credit histories that save in banks may use those deposits as collateral to access credit or to obtain credit on more favorable terms.”
In this blog post, UNHP has used the New America’s Financial Opportunity Map, published in September 2017, to show the high rate of AFS in the Bronx compared to traditional banks and credit unions.
The ratio of banks and credit unions to AFS in Bronx County is 1.02. In other words, for every bank or credit union in the Bronx there is one AFS. This can be compared to New York County (Manhattan) .18, Richmond County (Staten Island) .22, Queens County (Queens) .38, and Kings County (Brooklyn) .49. (Note: lower ratios mean that there are more banks relative to AFS, high ratios indicate more AFS relative to traditional financial institutions.) The Bronx has the lowest concentration of bank branches per household of any county in the United States.
Bronx County has the highest concentration of AFS out of the five boroughs. Its also has the highest percentage of minorities, 89.5%, and the lowest median household income, $34,284. This can be compared to New York County (Manhattan) 52.6% , $71,656; Richmond County (Staten Island) 36.8%, $74,043; Queens County (Queens) 73.5%, $57,210; and Kings County (Brooklyn) 64.3%, $46,958. This agrees with the FDIC’s assertion at the national level that “use of AFS was higher among lower-income households, less-educated households, younger households, black and Hispanic households, and working-age disabled households.”
According to the study “Where are the Unbanked and Underbanked in New York City” published in 2015, one ninth (11.7%) of New York City households were unbanked in 2013. In other words, one in nine New Yorkers did not have a checking or savings account and relied on AFS. This statistic is even higher in the Bronx: 21.8% of households were unbanked in 2013.
At a more micro level, the neighborhoods with high percentages of unbanked households are found in the Bronx and Brooklyn. It is important to note that these neighborhoods also have relatively high percentages of poverty and are home primary to people of color.
One in four New Yorkers (25.1%) was underbanked meaning that they had either a checking or savings account but chose to use AFS as well. The percentage of underbanked households in the Bronx in 2013 was 30.5%.
It is important to note that while banks and credit unions are preferable to AFS, there are reasons why these services makes sense for people in low-income communities; at West Farms Square Plaza, an affordable housing project with over 500 households, many of them senior citizens, tenants use the local bank branch for direct deposit of social security benefits, but because the bank is too far away, they will pay fees at either a local ATM to get cash or use the post office for money orders. Immigrants who may get paid in cash or with checks that can not be direct deposited may prefer to use a check casher because the requirements and fee structure is easier to understand and they do not qualify for the direct deposit benefits. For those both living and working in the Bronx, the lack of branches in the borough can affect their access to money; a check casher may be more accessible.
UNHP would like to see all banks offer low-cost products and services, such as no-cost cash checking services and checking accounts with low minimum balance requirements, as low and moderate income households are often not able to qualify for or successfully utilize more expensive products and services due to volatile or simply inadequate income. The big banks, have more locations, but less attractive low-cost options while the smaller community banks have more affordable options and fewer branches. Credit Unions, especially community development credit unions, often have many affordable products, but just one location. Access to surcharge-free bank ATM’s is important for low-income customers trying to avoid fees. A tool that expands access in areas with fewer banks is a surcharge-free ATM network in commercial locations that banks can pay to join. The Allpoint ATM network is the largest network of this type. In Bronx zipcode 10458 alone, there are 6 Allpoint ATM’s with an ATM in the underserved Bedford Park neighborhood. Alma Bank, Amalgamated Bank, Capital One, Citi, Popular Bank and Ridgewood Savings Bank participate in the Allpoint network. Money Pass and Coop are two other networks that expand surcharge-free ATM availability by participating lenders. UNHP’s Bronx Banking Guide offers a map of these ATM’s.
According to the 2015 FDIC National Survey of Unbanked and Underbanked Households, approximately 57.4% of unbanked U.S households say they do not have a bank account because they “do not have enough money to keep in an account”, 28.5% said that “avoiding banks gives more privacy, and 28% said that they “don’t trust banks”.
At the national level only 16.4% of households cited “ID, credit, or former bank account problems”, 15.4% cited “banks do not offer needed products or services”, and 9% and 8.5% cited “inconvenient locations/hours” respectively. These proportions are likely higher in the Bronx as there are large immigrant and minority populations, higher rates of poverty, and limited brick and mortar bank branches.
A 2015 NYC Comptroller report, Take It To The Bank, highlights a number of reasons that may create distrust or cause people to feel that they can not afford a bank account. Its findings support the FDIC’s conclusions from their survey of un/underbanked.
Some key findings of the report include:
- For a low balance customer, the average cumulative cost of maintenance and transaction fees amounted to $73 per year.
- The combined initial opening deposit requirement and the estimated cost of utilizing a ‘basic’ bank account ranged from $0 to $500 per year for a low balance consumer, according to a model developed by the Comptroller’s office.
- 28 percent of banks did not appear to offer or widely advertise a “basic banking” (also known as Lifeline) account, as is required under New York State law. Failing to promote these accounts makes finding an affordable entry point into banking all the more difficult for New Yorkers.
- Among the 20 banks offering the most affordable combination of fees and opening deposits, the vast majority (90%) are banks with 25 branches or fewer. This finding suggests that the bank on your block might not be the best bank for your buck.
In 2013-2014, UNHP undertook a survey of Bronx residents to understand the banking and AFS use by residents. The Bronx Financial Services Report revealed that 78% of respondents had a bank account, but 29% used both banks and check cashers and 15% used both banks and pawn shops. Bronx respondents felt distrustful of banks and were not sure how fees were charged, many preferred using a check casher because of their convenient location and the transparent fee structure.
One of the objectives of UNHP’s Northwest Bronx Resource Center (NWBRC) is to reduce the use of predatory and high-cost financial services by low-income Bronx residents. UNHP works towards that goal by participating in a Volunteer Income Tax Assistance (VITA) program that offers a no-cost substitute to tax pop-up shops and other paid preparers that charge for the service and an additional fee for each credit accessed. The NWBRC is a NYC Financial Empowerment Site with a Neighborhood Trust Financial Partners (NTFP) financial advisor who works with Bronx residents to address pressing financial issues. Reducing bank and AFS fees is often part of the debt reduction goals identified by clients. UNHP also offers the NTFP Getting Ahead action-oriented 10 hour financial workshop about 6 times a year. Getting Ahead graduates can access the NTFP Federal Credit Union with its low cost products and learn about the cost of predatory lending as part of the class. UNHP created the Guide to Banking in the Bronx (Spanish and French versions available), to share with Bronx residents so that they can compare local financial institutions.
Free and low-cost banking products targeted to low income clients can positively impact our neighborhoods. Customer service, even as banks move to more on-line services, remains important especially to seniors, immigrants and low-income clients. Ongoing relationships, banking services in a variety of languages and a straightforward fee structure builds trust. In the northwest Bronx, banks tend to be located together along commercial strips like Fordham Road or Jerome Avenue leaving many communities like Bedford Park and Crotona without convenient banking services. Expanding partnerships with other financial institutions and developing new creative means of banking in the Bronx may facilitate better bank access and banked Bronx residents. Two examples of creative thinking to better serve low-income customers are Citi’s ATM Community Network and Spring Bank’s check cashing to customer initiative. Neighborhood Trust FCU members can access Citibank ATM’s surcharge-free as part of a Citi pilot program. The program increases the affordability and convenience of the no and low-cost credit and wealth building products offered by Neighborhood Trust FCU and makes the credit union more attractive for eligible Bronx residents. Spring Bank, an FDIC insured community bank and Community Development Financial Institution (CDFI headquartered in the Bronx, offers savings and checking products intended to keep costs low and transparency high, and also offers surcharge-free ATM’s through the Citi ATM Community Network and Money Pass. According to Spring Bank President, Eric Pallas, “We work hard to move customers from check cashing relationships into banking relationship by cashing checks at a lower fee than the check cashers we are surrounded by and illustrating the savings to be had with an account. And we offer credit builder loans as a way to help customers establish a credit profile or improve their credit scores. We have seen individuals go from no score to 700 with a credit builder loan. We have opened hundreds of accounts with the Municipal ID as the primary form of ID.”
In the Bronx, banks not only compete with other banks, but with the AFS as well. Low household incomes will continue to drive the use of Alternative Financial Services in the Bronx as families struggle under the growing disparity between stagnating wages and increasing rents. Innovative depository and loan products, and creative partnerships with a focus on unbanked and underbanked low-income consumers can help stop the cycle of debt, develop financial stability and build wealth. By offering transparent, low-cost and convenient products, banks and credit unions can provide attractive alternatives to the high-priced AFS.