For many low-income District of Columbia residents, check cashing and other money order vendors are the only forms of “banking” they know.
But a new program recently announced by Mayor Adrian Fenty is poised to help some 10,000 of those residents get on a more solid financial footing by helping them sign up for a checking account through “Bank on DC,” a public-private partnership between the District, regional financial institutions and community-based organizations.
In making the announcement last week, Fenty described the program as a critical part of the city’s efforts to strengthen its economic foundation, while providing residents opportunities for increased financial literacy. Currently, the District is one of about 70 cities and states to implement the program, and President Barack Obama has included $50 million in his fiscal year 2011 budget for the “Bank on USA” initiative. ?
“The most basic step is to ensure that each of our residents has access to a checking account where they can secure their hard earned money and start saving for the future,” Fenty said in a prepared statement. ?
According to the mayor’s office, there are more than 37,000 unbanked households and 72,000 under-banked households in the District that spend roughly $800 a year in check cashing and money order fees.
Most of those residents live in the city’s poorer communities and include wards 7 and 8.Those districts are also where residents have fewer banks and credit unions, and more check cashing outlets such as those operated by small convenience stores.
The Florida-based Market Data Enterprises reported last month that people more likely to use those services include illegal aliens – who don’t have the proper documentation to open an account – and residents with a history of overdrawn checking accounts.
But MDE Research Director John LaRosa said the money they spend at check-cashing outlets is exorbitant.
“The amount of money spent at these places in 2008 was $2.07 billion and rose to $2.17 billion last year,” LaRosa said, adding that consumers also tend to flock to the outlets for convenience.
“They have better hours than banks and they’re open on weekends,” LaRosa told the AFRO. “A lot of the unbanked consumers – especially Blacks and immigrants – have trust issues with large banking institutions, so they’d rather deal with small, local firms that can be available when they need them and not have to worry about monthly fees or overdraft fees that banks charge.”
The HEW Federal Credit Union is among the seven banks and credit unions participating in the program. It has neither monthly fees, nor minimum balance requirements, nor courtesy overdraft protection – a feature that has caused many consumers to incur overdraft fees which have ultimately led to the closing of their bank accounts.
?“The Bank on DC account is a very safe and affordable account, ideal for someone who is banking for the first time or who needs a second chance,” Fiona Greig, Bank on DC program manager said. “We have set a goal to open 10,000 Bank on DC accounts in the District and to offer financial education to every single one of those account holders.”