At Cornerstone Community Financial, there is such a thing as a second chance.
To help people who do not have financial accounts, the Auburn Hills, Mich., credit union recently launched its Fresh Start Checking. Its goal is to allow the unbanked population become members of both the credit union and the American Dream, said spokeswoman Stephanie Leahy.
Leahy said the program is geared toward people that may not qualify for traditional checking accounts due to past problems, like non-sufficient funds or other derogatory records on ChexSystems. ChexSystems is a system that many financial institutions use to determine eligibility for opening of a checking account.
“We developed this checking account to protect members from being forced to use check cashing companies and payroll lenders who can often charge up to and over 100 percent in interest,” Leahy said. “This can be a very hard cycle to emerge from and we want to help our members from being forced into using these services to begin with.”
At the end of 12 months, members with positive account activity automatically graduate to a basic checking account at Cornerstone – and move into a new financial life.
Finding ways to help the so-called unbanked population is a situation many banks, credit unions and other financial institutions are focusing on in recent years. This is a situation that has become even more serious in light of the nation’s current economic recession, which has put more Americans in jeopardy of losing their homes, their savings and their monetary footing.
Who are the unbanked? According to American Banker, half are women, nearly 60 percent are 44 years old or younger and 70 percent have an annual household income of less than $35,000.
The Federal Deposit Insurance Corporation describes the unbanked as those people without accounts at banks or other mainstream financial institutions. The FDIC estimates that about 10 million American households match this description – mostly immigrants and others who have a low income or do not have the minimum amount to open a checking or savings account.
As a result, these consumers rely on cash to get by. They tend to pay excessive fees for basic financial services and are susceptible to high-cost predatory lenders. They may also have difficulties buying a home or acquiring other parts of what most people call the American Dream.
The reason the unbanked is so important to financial professionals is simple – most people need to have checking or savings accounts to build a strong foundation. Without these accounts and the legitimacy they bring, it is hard for these families to establish emergency funds, save for large purchases or accumulate wealth for retirement.
“It’s an issue we’ve been working on for a decade,” said Leo MacNeil, senior vice president of marketing at HarborOne Credit Union in Brockton, Ma. “We realized the barriers are not simply language; it is cultural issues and trust.”
There are some innovative programs like the one at Cornerstone Community Financial that can be found across the nation. They include:
* Shell Federal Credit Union in Deer Park, Texas, offers financial education courses in English and Spanish. Courses include how to avoid common financial mistakes, getting out of debt, understanding your credit score and protecting your identity.
* Denver Community Federal Credit Union offers a “savings builder loan,” which allows members with poor or no credit to receive a $500 loan, put it into a savings account and pay it back over time – establishing credit while building their savings.
* Michigan First Credit Union in Lathrup Village, Mich., is mentoring a new credit union that is geared specifically toward the unbanked in Metropolitan Detroit. This credit union has greater potential to gain the community’s trust because of its location, staffing and programs that are unique and focused on minority and low-income populations, said Michigan First CEO Michael Poulos.
* Metropolitan National Bank in New York created its own retail financial services company to serve the unbanked. CashZone has more than 110,000 members and operates in 13 full-service centers around the Big Apple.
CashZone via Metropolitan National Bank recently began offering CashZone Check2Card. The program allows CashZone members to convert paychecks and most government-issued checks, for no charge, into instantly available funds on a CashZone Prepaid Visa Card.
“CashZone Check2Card is an enormous first step toward the financial mainstream for previously under-served consumers, opening up a world of financial services to deserving families,” said Mark R. DeFazio, President and CEO of Metropolitan National Bank.
Other popular programs include those that provide low-income tax filers with free tax preparation, free electronic filing and free deposits of refunds. This helps consumers avoid costly refund anticipation loans, advertised heavily by for-profit tax preparers who can charge percentage rates upward of 2,000 percent.
Another way to attract the unbanked to your branch is to install check-cashing kiosks, which allow users to receive money from income-tax refund checks and the like without having to use a teller.
One of the more ground-breaking programs launched last year is “Bank on California,” this program will help more low- and middle-income Californians establish savings, build a credit history, gain access to lower-cost sources of credit and invest for the future, officials said.
According to the Brookings Institution, 11 percent of California households do not have a checking account, while 47 percent do not have a savings account. 21 percent of African American households and 24 percent of Latino households do not have a bank account. According to 2006 Scarborough Research, California is home to two of the top three areas with the nation’s highest percentage of residents without bank accounts: Fresno and Los Angeles.
The state-wide program will unite financial partners, governmental leaders and communities to ensure California’s unbanked have access to education, find information about programs available to them and help banks, credit unions and others develop “starter accounts” to learn the basics about savings and checking.
