82.1 F
San Fernando
Sunday, May 26, 2024

Banking Incentive Program Hopes to Help Low Income Families

Bringing banking services to the estimated 300,000 people in Los Angeles who do not have a checking or savings account is a challenge that Councilmember Richard Alarcon has decided to take on as part of an overall effort to end poverty in the city. The lack of access to banks and the proliferation of check-cashing outlets and payday loans, especially in the Northeast San Fernando Valley and other economically challenged areas including East Los Angeles and South Central, he says, are further feeding the poverty cycle. “Every year local “unbanked” families pay over one hundred million dollars in unnecessary fees because they don’t have access to local banks,” he said. According to a study by the Bookings Institution, the average unbanked Los Angeles household pays over $700 each year to carry out simple financial necessities such as cashing checks and using money orders to pay for bills. “$700 a year is a lot of money for a family and that’s money that is going out of their pockets and out of the communities where they live and shop,” Alarcon said. In Los Angeles the number of check-cashing outlets and payday loans collectively outnumber bank and credit union branches roughly two to one. To combat this trend and entice banks to open branches in underserved areas, Alarcon is proposing the creation of Banking Development Districts in Los Angeles. The program is based on a successful model used in New York City, where 18 new bank branches have opened in underserved, usually low-income neighborhoods since 2003. Through the program, New York deposited $200 million in these BDD branches as a way of guaranteeing a healthy deposit base for them at those locations, and has committed to investing $50 million more. Alarcon is suggesting Los Angeles do something similar. “In our reserve account we have over $200 million, it’s sitting in some bank some place,” he said, adding that the city should deposit those funds in branches that are socially responsible by operating in underserved communities. “When banks enter a community it takes quite a while to get the customer base necessary for them to maintain themselves, but by the city guaranteeing a healthy deposit base, it very much encourages them to do business in those areas that they otherwise wouldn’t,” he said. Besides guaranteeing a percentage of municipal deposits, the Banking Development Districts program would also include other incentives such as real property tax breaks that decrease over time and fast-track land use approval. Such incentives have proven effective in other areas. “I can point to the City of Maywood,” Alarcon said. “They have established, in the course of 15 years, three or four additional banks.” Several community and nonprofit organizations support Alarcon’s initiative. In Pacoima where there are only two banks serving the community, M.E.N.D. (Meet Each Need With Dignity) an organization serving low income residents, is backing the effort. Other organizations supporting the push for Banking Development Districts include Community Financial Resource Center, East Los Angeles Community Corporation, Operation HOPE and New America Foundation.

Featured Articles

Related Articles