City launches “Safe Start” account to help underbanked New Yorkers
On a recent Saturday afternoon, Leo Lendy, a 21-year-old Mott Haven resident, walked out of the Pay-O-Matic on 149th Street and Morris Avenue clutching a wad of cash.
As an employee at the Hunts Point Fish market, Lendy typically gets a paycheck of more than $500 every two weeks. He spends about $40 of that to cash his check, wire money and pay his bills through the Pay-O-Matic check cashing store.
Lendy doesn’t have a bank account. He’s convinced that the way the economy is going, the banks are likely to crash.
“I’m willing to pay the $40,” Lendy said. “I’d rather have my money in cash.”
Lendy is one of thousands of Mott Haven and Melrose residents who stay away from banks. According to a report released in late February by the Department of Consumer Affairs, 56 percent of Mott Haven and Melrose households are “underbanked.” Instead of banks, they regularly use check-cashing stores and pay day loan centers to conduct financial transactions, paying high fees and high interest as a result.
City officials hope to attract these residents to the new “Safe Start Account,” a checking account that requires a minimum balance of just $25, comes with an ATM card and has no monthly fees or overdraft penalties.
While in Manhattan banks often sit on every other block, the few major banks and small credit unions in Mott Haven are mostly clustered on 149thStreet, near the Hub.
Experts say because banks depend on their customers keeping a relatively large sum in their accounts to make a profit, they tend not to do business in neighborhoods such as Mott Haven, where nearly half the residents live below the poverty line.
Residents like Oscar Rubio, who uses the Pay-O-Matic to cash his disability check, agree.
“Here, the banks don’t get enough business,” he said, shrugging his shoulders and leaning on his cane. “It’s the South Bronx.”
Some of the people cashing checks at the Pay-O-Matic did say they used it because banks were too far from their homes. However, the report notes that living near a bank doesn’t increase the chances that individuals will open a bank account.
High and hidden banking fees are more likely to discourage low-income people from opening accounts more than the distance they have to travel to a bank, said Abigail Lootens, assistant director of communications for the Department of Consumer Affairs.
“The real issue is making sure that when people, particularly those with low and moderate incomes, are using banks, that they are connected to safe products they can trust,” Lootens wrote in an e-mail message.
People at the Pay-O-Matic on a recent Saturday cited a variety of reasons for using the check cashing store. Some said they did have bank accounts, but continued to cash their checks at the Pay-O-Matic out of habit. Mott Haven resident Lisa Gill, whose income comes from babysitting, paid $6.81 to cash her $300 check. She has a bank account at Chase, she said, and when asked where the nearest branch was, she pointed up the block.
“Just up there,” she said. Asked why she didn’t deposit her check there, she paused.
“I guess I never thought about it like that,” Gill said, laughing. “I could have used that $6.”
Others said they thought they did not possess the right identification, or they did not trust the bank to safeguard their personal information.
And for many people, according to Miriam Johnson, Assistant Vice President of the South Bronx Overall Economic Development Corporation (SOBRO), previous debt is a big problem.
“You have a lot of people who have poor credit and they are afraid their money is going to be garnished as soon as they open an account,” Johnson said.
Immigration status is also an issue in Mott Haven, Johnson said. Many undocumented immigrants do not know they are entitled to a bank account and can open one safely.
People who use fringe financial services pay much more than a bank would charge for the same services. The average fee per check at a check-cashing center was over 3 percent, according to a 2008 report by the Federal Deposit Insurance Corporation. Someone cashing a check for $442 would pay nearly $14 on average, the report found.
Check cashing and payday loans are big business. According to the FDIC report, alternative financial services take in more than $320 billion a year. Check cashing alone earned some $58 billion in 2008.
While most banks don’t charge to deposit or cash checks, they do impose many fees. Bouncing a check will cost a customer nearly $30 on average, according to Bankrate Inc., an online publication that reports on the bank industry. To avoid service fees on so-called free checking accounts requires an average daily balance of nearly $75.
Although these fees are less than what check cashing services charge, Lootens said, they cause many low-income people and families to avoid bank accounts—leaving them off the financial map.
“Not only does having a bank account make it easier to save,” Lootens said, “It protects your money from theft, allows you to avoid costly check cashing or bill payment services and builds your financial identity, which will allow for future loans and purchases.”
Safe Start at a glance
By Hannah Rappleye
Requirements: Keeping $25 in the account
How: Residents can open a Safe Start Account and receive free financial counseling at the New York City Financial Empowerment Center, 3125 Third Avenue
Where: These local and nearby credit unions are participating in the program:
CheckSpring Bank, 69 East 167th Street
Bethex Federal Credit Union, Conrad Walker branch, 20 East 179th Street
A version of this story appeared in the April 2010 issue of the Mott Haven Herald.