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Insufficient Funds: Banks offer few options for low-income customers 

"The less money you have, the more you need a bank account."

On a recent frigid Friday afternoon outside the ACE Cash Express off Market Square, there is a steady stream of customers.

There's a 34-year-old mother of two who pays nearly $20 to cash her paycheck of $591.57. She's not happy to be here, she says, but doesn't have a choice. After she lost her last job, the bills started piling up, and her PNC checking account got hit with overdraft fees she still isn't able to pay off.

Malick, who declines to give his last name, stops by to load money on his prepaid debit card, an increasingly popular financial option that he says costs him $3 to load, plus a $5 monthly maintenance fee. He's unable to open a checking account because "I owe so many banks money from gambling."

And there's William McGann, a 40-year-old Mount Washington concrete worker who's just cashed his paycheck at a cost of about 3 percent. "I hate banks," he says.

They're not alone: 10.1 percent of Pittsburghers don't have bank accounts (about 2.4 percentage points higher than the national average) and 19.9 percent are "under-banked"— meaning they have accounts, but also rely on financial services like check-cashers, payday lenders, pawn shops or rent-to-own agreements.

That's according to the Urban League of Greater Pittsburgh, which is launching a new program in an effort to bring those numbers down.

As this issue was going to press on Feb. 18, banks, local officials and community groups were scheduled to announce an initiative called "Bank On Greater Pittsburgh" — an attempt to connect low- and moderate-income people with low-cost banking and financial education. The United Way provided the Urban League with $150,000 in annual grant support for three years for the program, according to Debra Squires, director of family growth and child development at the Urban League.

"People who are poor have the least money to put into other services," Squires says. "The less money you have, the more you need a bank account."

That's the logic of the Bank On initiative, which is based on a National League of Cities model: People who rely on services like check-cashers would be better off if banks could offer them "second chance" accounts with low transaction costs, low- or no-minimum balance requirements and overdraft-fee controls.

"That's why these [initiatives are] a good idea," says Mark Price, a labor economist at the left-leaning Keystone Research Center. "They mix in education — they try to change the fee structure in a way that's less harmful to low-income individuals. Because of their income, they are going to bounce checks. Getting banks to partner and recognize that [...] is a good thing."

The program has the support of Mayor Bill Peduto, who included the Bank On program among the 100 policies he proposed leading up to his election.

"It's critical that the Urban League is really leading this because they are a trusted voice," says Betty Cruz, Peduto's non-profit and faith-based manager. "They will have the interest of the community in mind."

But even if financial institutions are willing to do some banking education in low-income communities, it's not yet clear whether they plan to change the financial products they already offer — a reality the Urban League's Squires acknowledges, but hopes to work on as the program develops.

PNC Bank, which participates in Bank On initiatives in 17 cities, typically "[offers] the type of products we would offer off the shelf, and in most cases those services require a fee," says spokesman Fred Solomon.

The bank declined to discuss, prior to the official announcement how it plans to participate in the Pittsburgh version of the program.

A Fifth Third Bank spokesman echoed that sentiment, saying it would participate, but essentially offer the same services it offers to all its customers.

"Serving people of meager means is very costly," says Richard Witherspoon, CEO of the Hill District Federal Credit Union. He says he offers a $500 emergency-loan program at a slight loss and plans to participate in the Bank On program with financial outreach and counseling.

But some point out that poor people rely on alternative financial outlets because they offer a service they can't get at traditional banks.

"Banks haven't changed their model enough to really do what needs to be done to serve the needs of lower-income people," says Lisa Servon, a professor of management and urban policy at The New School in New York.

Servon, who worked for several months last year as a check-casher and teller in the South Bronx to understand why people use non-mainstream financial services, says many poor people "actually are not ignorant — they're making pretty conscious choices about what they're doing" when they choose check-cashing or payday loans over traditional bank accounts.

The people she saw often lived paycheck to paycheck and couldn't wait several days for a check to clear. They would rather pay for a check-casher or payday loan in order to make ends meet than pay overdraft fees, which can actually be more costly, she said. Plus, check-cashers are often open later and are more visible in poorer communities.

"If we look at the business model of banks, their role is to make as much profit as they can — and they don't make a ton of profit by doing lots of transactions," she says. "They'd rather have one customer with a million dollars than have a million customers with one dollar."

Servon says that programs like Bank On can be useful if they offer products that poor people actually need, but it's important not to lose sight of poverty as the underlying reason people choose alternatives.

"Anybody who's working full time at a job should be able to make ends meet — and that's just not the case," she says. "The emphasis is always on the customers changing — and I think the services need to change."

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