Opening Day at the Bank

It frightened San Francisco caregiver Roy Miller to walk his older and disabled clients through crime-infested neighborhoods in order to reach local check-cashing outlets. And it sickened him when they paid "$30 right off the top" to cash their modest Social Security checks. "It's a lot of money on a fixed income—enough to stock up on groceries," he says. But now Miller and his clients are able to take a safer route to cash their checks—they've opened accounts at a credit union located near their homes, an option that wasn't available to them before the city launched the Bank on San Francisco program in September.

Under the initiative, 15 local financial institutions offer checking and savings accounts specifically designed to reach the city's 50,000 households that do not have bank accounts, including people with no banking history or those whose checkered pasts—even those who bounced checks—prevented them from opening new accounts.

San Francisco treasury officials and the Federal Reserve Bank of San Francisco launched the initiative to boost thousands of low-income residents out of the fee-paying cycle and into the mainstream banking system—a move promoted as advantageous for individuals, banks and the San Francisco community.

Typically, financial institutions prohibit customers from opening new accounts for five years after they've written bad checks or overdrawn their bank accounts excessively. But the lenders affiliated with Bank on San Francisco are more forgiving.

They overlook a history of bounced checks if the most recent occurrence was more than a year earlier. They require no minimum balances; offer free checking or low-cost account maintenance fees; and accept Mexican and Guatemalan identification cards, which is a first for some institutions and a lure for immigrants who don't have other identification. The lenders also provide financial management courses for customers.

San Francisco's treasurer, José Cisneros, touts the program—and the distinctive services it offers—as the first of its kind in the nation. He says other cities have expressed interest in creating similar programs, including Los Angeles, Seattle, Boston and Atlanta.

Half of San Francisco's adult population of African Americans and Hispanics have no checking or savings account, Cisneros says. Neither do an estimated 28 million people nationally, and another 45 million use banks only occasionally, according to the Center for Financial Services Innovation in Chicago.

That's a boon for the check-cashing industry, which has more than doubled in size since the mid-1990s. There are now an estimated 6,500 outlets around the nation that generate $1.5 billion a year by charging fees of about 2 percent to cash a paycheck, up to 12 percent for a personal check and 5 percent for each money order to pay a bill.

Check-cashing outlets "appeal to people who fear paying check-bouncing fees to banks," says Peter Skillern, a former member of the U.S. Department of Housing and Urban Development's predatory lending task force and now executive director of the Community Reinvestment Association of North Carolina. "When you incur penalties, they can be a very expensive proposition. Having been burned by that, folks are wary."

But adults who have no relationship with a bank may miss out on competitive loan rates and savings—building blocks for a more secure future, he adds.

Cynthia Vega, a spokeswoman for the Financial Service Centers of America, headquartered in New Jersey, says banks historically have failed to meet the needs of lower-income customers. Their hours are inconvenient to some, such as night shift workers, and their business practices limit access to funds. "These folks live paycheck to paycheck, and when they're paid, they immediately pay their rent, get money orders to pay their bills, and whatever they have left over, they may wire home [to another country] to support their families," Vega says.

Danielle Brumfield, a 26-year-old mother of two, could have bought groceries for the month with the hefty fees she shelled out to check-cashing outlets near San Francisco. She paid $20 each week to cash her paycheck and another $20 in fees to pay her bills. And that didn't include taxicab fare to get to the check-cashing storefront.

In October, Brumfield, a United Way employee, opened a checking account with a local lender affiliated with the Bank on San Francisco program that was willing to overlook her history of bouncing checks. She also opened a savings account, her first in years.

"I don't have to pay fees to pay my bills anymore, or pay to cash my paycheck," she says. "I'm able to save more because this is money I'm not spending."

In a city as expensive as San Francisco, says caregiver Roy Miller, the program makes it easier for his older clients to pay rent and put food on the table. "This has made a big difference for my clients who are on a fixed income."

For more information on the Bank on San Francisco program, go to www.sfgov.org.