My Day Without Banks

Lesson one from navigating the archipelago of check cashers, payday lenders, and discount store money desks: it’s expensive to be poor.

National Journal
Ronald Brownstein
June 10, 2014, 1:20 a.m.

LOS ANGELES—Our first prob­lem was that we couldn’t cash a check.

Our small group had come to a su­per­mar­ket in west Los Angeles to cash a $15 per­son­al check that we needed to help pay for sev­er­al fin­an­cial trans­ac­tions we had set out to ac­com­plish. But we couldn’t take the first step be­cause the store, it turned out, wouldn’t cash an out-of-state check. So we were stalled at the start­ing line.

That was a re­veal­ing early mo­ment in a fin­an­cial scav­enger hunt across Los Angeles last week that I joined along with sev­er­al dozen par­ti­cipants from the fin­an­cial in­dustry, non-profit groups, and ad­vocacy or­gan­iz­a­tions. The field trip, called FinX, was or­gan­ized by the Cen­ter for Fin­an­cial Ser­vices In­nov­a­tion, a group that works to ex­pand ac­cess to the fin­an­cial sys­tem. The goal was to ex­pose us, if only briefly, to the daily ex­per­i­ences of the roughly 35 mil­lion Amer­ic­an house­holds who con­duct much of their fin­an­cial lives out­side of the tra­di­tion­al bank­ing sys­tem, ac­cord­ing to fed­er­al fig­ures.

Here are some of the les­sons that the group took from our dip in­to this murky world. It’s ex­pens­ive to be poor. It’s also very time-con­sum­ing. And there isn’t much guid­ance to help you make good de­cisions, more ef­fect­ively man­age your money, or be­gin build­ing a pos­it­ive cred­it his­tory.

But par­ti­cipants also con­cluded that many of the front-line work­ers who in­ter­act with cus­tom­ers are friendly and help­ful. And that the ar­chipelago of check-cash­ing store­fronts, su­per­mar­ket and dime-store money trans­fer coun­ters, and pay­day and title loan lenders add up to an al­tern­at­ive fin­an­cial sys­tem that can ul­ti­mately meet the needs of some fam­il­ies liv­ing at the mar­gin, even if they in­volve costs in time and money that more af­flu­ent fam­il­ies might con­sider un­ac­cept­able. “The mes­sage is that it’s nu­anced,” said Jen­nifer Tes­cher, pres­id­ent and CEO of the CF­SI, which or­gan­ized the out­ing as part of a con­fer­ence it co-sponsored here last week on in­nov­a­tion in reach­ing un­der­served fam­il­ies. “It’s com­plic­ated. We need to throw away our per­ceived ideas about what the con­sumer needs.”

The group I joined in­cluded three young people from dif­fer­ent corners of the in­dustry: Ranjit, the man­ager of strategy and de­vel­op­ment for a lead­ing mi­crofin­ance lender; Kath­er­ine, a seni­or policy ana­lyst for a DC-based group that ad­voc­ates for great­er fin­an­cial ac­cess, and Ro­dolfo, who works at a ven­ture cap­it­al firm that in­vests in fin­an­cial ser­vices start-ups. Each of them was razor-sharp and ex­pert on the big trends of tech­no­logy, demo­graphy and busi­ness op­por­tun­ity re­shap­ing the fin­an­cial sys­tem. Yet we some­times found ourselves baffled by the trade-offs of time, cost and con­veni­ence that we faced.

The CF­SI provided each group with two checks: a payroll check for $105 and a per­son­al check for an­oth­er $15. Us­ing only the pro­ceeds (and none of our own money), we were re­quired to com­plete a series of fin­an­cial trans­ac­tions, in­clud­ing ex­ecut­ing a money trans­fer, buy­ing a money or­der to pay a bill, ob­tain­ing and load­ing a pre­paid deb­it card, and in­quir­ing in­to pay­day and title loans. And we were sup­posed to vis­it a pawn­shop.

As com­pared to con­sumers who can only af­ford pub­lic trans­port­a­tion, we had a big ad­vant­age in that a car and driver were as­signed to get us around. But we were provided only the most gen­er­al guid­ance about the kind of places where we might com­plete the as­signed trans­ac­tions. We were told to search out the spe­cif­ics through our smart phones, which re­search shows to be the prin­cip­al way many lower-in­come fam­il­ies in­ter­act with the In­ter­net.

We stumbled out of the gate. When we brought the $15 check, made out to Ranjit, to the fin­an­cial counter at a su­per­mar­ket on bust­ling Pico Blvd. they told us it would be $2 to cash it, but free if we bought something in the store. So we headed over to find our pre­paid deb­it card.

When we re­turned to the counter, though, the clerk took a closer look at the check. And then an­nounced that she could not cash it, even with a pur­chase. “We don’t cash out of state checks,” she said. “So,” Ranjit told the rest of us, as he turned around to re­turn the pre­paid card, “we don’t have any money to buy this.”

The clerk told us to try a com­mer­cial bank two blocks east. We walked out to the street and didn’t see a bank in sight. So we piled back up­stairs to the car and drove down Pico un­til we found one. Once we ar­rived, Kath­er­ine suc­cess­fully cashed the $105 payroll check made out to her-but for a $6 fee. Even so, the bank wouldn’t let her com­plete any of the oth­er tasks on our list, she ex­plained as she re­joined the group, “be­cause I’m not an ac­count hold­er.”

For our $15 check, we stopped next at a check cash­ing store­front squeezed next to a li­quor store in a Venice strip mall. The room was stark: no chairs, no desks, glar­ing fluor­es­cent lights, and a single clerk be­hind a plexi­glass win­dow. It vaguely sug­ges­ted a po­lice sta­tion. When Ranjit went to the counter, the clerk in­formed him that it would cost $5.99 to cash the $15 check. He also needed to fill out an ex­tens­ive ques­tion­naire of per­son­al in­form­a­tion. (“I was sur­prised,” he said later, “by the amount they wanted to know.”)

The clerk raised her eye­brows at the check’s amount and asked Ranjit if he might prefer to take out a pay­day loan the next time he came in. The max­im­um pay­day loan, she ex­plained, was $255-which re­quired a re­pay­ment of $299.98 with­in two weeks. We passed on the loan, but bought a money or­der, and picked up a pre­paid card, check­ing off an­oth­er two items from our list.

Next we stopped at a 7-11 in an­oth­er strip mall to check an­oth­er box: adding an­oth­er $10 to the card. That was easy enough, and when we stepped out in­to the mid-day sun­shine, Ranjit asked Kath­er­ine if she would hold his leftover cash. “That’s a really in­ter­est­ing gender dy­nam­ic, giv­en that’s how many low in­come fam­il­ies op­er­ate,” she said with a smile. “The money is in the wo­man’s hands.”

We took the money across the street, to yet an­oth­er check cash­ing store­front in yet an­oth­er strip mall. The win­dow was covered with ban­ners ad­vert­ising “Easy Title Loans,” “More Cash/Lower Pay­ments” and “Bad Cred­it OK.” Kath­er­ine went to the counter to fin­ish an­oth­er task: ex­ecut­ing a money trans­fer to an­oth­er team mem­ber that we could pick up some­where else.

While she was there, work­ing through an­oth­er sheaf of pa­per­work, Ro­dolfo re­flec­ted on the in­terest rates lis­ted for pay­day and title loans. All were very costly, he said, yet might still make sense for the people stand­ing in line around us. (While Kath­er­ine was com­plet­ing the money trans­fer, one wo­man was told she couldn’t get an­oth­er pay­day loan un­til next week.) “It’s hard to com­pare be­cause we have al­tern­at­ives, but the set of al­tern­at­ives for low-in­come fam­il­ies are dif­fer­ent,” he said. Though a pay­day loan is ex­pens­ive, he sug­ges­ted, it might be cheap­er than, say, pay­ing to have a util­ity turned back on after it’s dis­con­nec­ted be­cause you didn’t pay a bill in time. Be­sides, he con­tin­ued, if reg­u­la­tion too severely lim­its what lenders like this can of­fer, the next op­tion for some bor­row­ers might be loan sharks who not only charge more, and op­er­ate with no over­sight at all, but cre­ate oth­er risks (like vi­ol­ence). “De­pend­ing on what the al­tern­at­ive is,” he said, ges­tur­ing to­ward the loan rates lis­ted on the wall, “you can ar­gue that it’s cheap or ex­pens­ive.”

Kath­er­ine re­turned singing the praises of the man who had care­fully walked her through the money trans­fer. “He was great,” she said. The rest of the trip passed quickly. We stopped in at a title loan store that was sus­pi­cious of us be­cause oth­er groups on the field trip had already come through. Then we went to a pawn shop where Kath­er­ine dis­covered she could walk out with some ex­cel­lent jew­elry for a song-but was offered only $100 for her en­gage­ment ring. A fi­nal stop at an “88 cent store” where Ro­dolfo seam­lessly picked up the money trans­fer Kath­er­ine had pur­chased-and we were back at the hotel only a few minutes after the dead­line.

In all, we had made eight stops in less than three hours. We had ac­quired $120 in cash, through the two checks, and spent $21.83 in fees across all our trans­ac­tions-nearly one-fifth of our total re­sources. We re­ceived some very cour­teous per­son­al ser­vice de­signed to help us com­plete the im­me­di­ate trans­ac­tion we were at­tempt­ing, but ut­terly no ad­vice on how to more ef­fect­ively man­age our fin­an­cial lives. We were re­quired to provide ex­tens­ive per­son­al in­form­a­tion but didn’t get much in­sight back about the de­tails of the products we were pur­chas­ing; the en­tire ex­per­i­ence felt a little like look­ing through a one-way glass. (Or, as Ranjit put it, there was an “in­form­a­tion asym­metry.”) Noth­ing we did im­proved our cred­it score, or even helped us to es­tab­lish one. Nowhere were we offered an op­por­tun­ity to save. If there were new apps or oth­er tech­no­logy that might have made our trans­ac­tions easi­er and smooth­er, no one poin­ted us to­ward it.

And yet, our group fi­nally con­cluded, for its own lim­ited pur­poses, it all sort of”¦kind of”¦worked. The al­tern­at­ive fin­an­cial sys­tem that we briefly vis­ited, with all the ad­vant­ages of edu­ca­tion, ex­pert­ise and ex­per­i­ence that we car­ried (not to men­tion a driver) felt like a car that was held to­geth­er with duct tape and spent too much time in the shop, but still mostly got you around. It might not work smoothly, and it might cost a lot to op­er­ate, but the vari­ous pieces of the sys­tem did al­low low-in­come fam­il­ies to bal­ance their in­come against their ex­penses, meet short­falls (at high cost) and move money around without in­ter­act­ing with con­ven­tion­al banks. Kath­er­ine sum­mar­ized the group’s feel­ings when she said: “It’s hard to jus­ti­fy a lot of the ex­tra costs but there are some ways it is more con­veni­ent and meets people’s needs bet­ter.”

When we were done, the ques­tion I found my­self ask­ing wasn’t wheth­er the sys­tem func­tioned-but wheth­er it was the best we could do for fam­il­ies who are already op­er­at­ing with so little mar­gin for er­ror. “The chal­lenge we are fo­cused on,” Tes­cher told me after I re­turned, “isn’t wheth­er you have a bank ac­count; it’s wheth­er you are man­aging your fin­ances day-to-day in a way that provides se­cur­ity and op­por­tun­ity.” We didn’t en­counter much of either dur­ing our brief im­mer­sion in­to the hazy ar­chipelago of al­tern­at­ive fin­ance.

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