D.C. program offers fee-free bank accounts to the 'underbanked'

By V. Dion Haynes
Monday, May 3, 2010

In many District neighborhoods, check-cashing establishments are far more common than banks and credit unions. Overall, according to the city, nearly 110,000 residents never or seldom use banks, a proportion that is higher than the national average.

Now the city is collaborating with Bank of America, PNC, Wells Fargo and 10 other banks and credit unions to help users of such services -- who spend an average of $800 a year in check-cashing fees -- establish checking and savings accounts. In some cases, the institutions involved in the program will waive requirements, allowing customers to maintain small balances without paying monthly fees.

"We have a pretty considerable number of households in the city that don't have bank accounts," said Sean Madigan, spokesman for D.C. City Administrator Neil O. Albert.

Opening a bank account is the "first step to financial empowerment," Madigan said, noting that the program also offers instruction in financial literacy. People who use check-cashing services need to know "there's a cheaper way to manage their money."

About 12 percent of the city's households, or 37,000, do not use banks. About 24 percent, or 72,000 households, are classified as "underbanked" because, while having savings accounts, they use check-cashing services. The highest proportions of people without banks are in wards 1, 4, 7 and 8, city officials said.

Under the program, called Bank on DC, customers can maintain accounts without a minimum balance and without overdraft protection, a feature that often causes users to rack up huge fees when they bounce checks. Institutions involved in the program will offer "second chance" programs for people who have bad credit histories and will allow customers to use foreign IDs.

City officials say they hope that 10,000 residents, particularly minorities, will sign up for the services.

"We know that 83 percent of the unbanked are black and 11 percent are Hispanic," said Fiona Greig, a consultant to Valerie Santos, D.C.'s deputy mayor for planning and economic development.

In wards 2 and 3, "95 percent of the financial institutions are banks or credit unions," she said, adding that Bank on DC is modeled on a similar program introduced in San Francisco. "If you look at wards 1, 4, 7 or 8, less than half are banks or credit unions."

Some of the financial institutions that signed up say they already have offered outreach programs for the unbanked. The city program, they said, will help draw attention to their existing programs.

"It was a great fit for us. We're already reaching out to that segment," said Kathryn Clay, PNC's vice president and community consultant.

Customers remain in PNC's Foundations of Money program for "six months and graduate to a standard account," Clay added. "It's a way to [help people] gain confidence in the mainstream banking system [because] the alternative banking system is more costly."

Mike Fitzgerald, president and chief executive of Bank of Georgetown, said his institution has long offered free checking. The city program is sparking "momentum and enthusiasm that brings an awareness to the community" about the bank's products, he said.

The program is another way for the city to crack down on predatory lending. A few years ago, the city outlawed payday lending and capped the fees check-cashing establishments can charge.

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