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
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.

What We're Following See More »
Gillibrand Announces Exploratory Committee
11 hours ago
Sherrod Brown Also in 2020 Mode
11 hours ago
Report: Trump Told Cohen to Lie to Congress
11 hours ago

"President Donald Trump directed his longtime attorney Michael Cohen to lie to Congress about negotiations to build a Trump Tower in Moscow, according to two federal law enforcement officials involved in an investigation of the matter. Trump also supported a plan, set up by Cohen, to visit Russia during the presidential campaign, in order to personally meet President Vladimir Putin and jump-start the tower negotiations. 'Make it happen,' the sources said Trump told Cohen."

Kamala Harris Announces for President
11 hours ago
Pelosi Rejects Trump's Immigration Offer
2 days ago

Welcome to National Journal!

You are currently accessing National Journal from IP access. Please login to access this feature. If you have any questions, please contact your Dedicated Advisor.