Juan Murillo used to spend hundreds of dollars a year at check-cashing outlets because he was too intimidated by the U.S. banking system to open an account and did not speak enough English to write a check himself.
When he finally summoned the courage to open a checking account at Bank of America, he found that he could withdraw cash, write checks and transfer money to his family in Mexico at no additional cost. And the best part, he said, is that "my tax refund is deposited directly into my account."
Nearly 300,000 Los Angeles households do not have a bank account, more than in any other U.S. city, Mayor Antonio Villaraigosa acknowledged at a news briefing Tuesday. Without these tools, low-income families can't put money away for their children's education or the down payment on a home, establish a credit record or pay their bills without giving up a large portion of their salaries to storefront check-cashing outlets, payday loan operations and pawnshops.
It is a problem common to many U.S. cities, especially ones with large numbers of illegal immigrants who do not have the paperwork to open an account and are fearful of mainstream banks. But even individuals who are here legally sometimes find that they can't open an account because they don't have a Social Security number.
A new initiative announced at Tuesday's briefing aims to help 10,000 low-income Angelenos enter the financial mainstream before the end of the year by reducing the cost and simplifying the process of banking.
Dubbed "Bank on Los Angeles," the initiative "will offer all Angelenos the tools to open bank accounts, save for the future, climb another rung on the economic ladder and punch their ticket to economic growth for years to come," Villaraigosa said.
At least a dozen financial institutions have signed up, agreeing to waive the usual fees for a checking account or offer a low-cost alternative for an average of about $5 a month. They include big names such as Bank of America, JPMorgan Chase/WAMU, Citibank and Wells Fargo/Wachovia, as well as community banks and credit unions.
Bank representatives at Tuesday's launch said expanding their operations in low-income neighborhoods would help raise the profile of their institutions and build relationships that could yield dividends as families start to save and invest.
"These are customers for now and, most importantly, for the future," said Lynn Fernandez, a Bank of America region executive in Los Angeles.
Although many cities have tried to drive out storefront financial operations, which they say prey on the poor, few have come up with an alternative for families looking for a loan to carry them through to the next paycheck and other short-term services. But when San Francisco launched a similar initiative in September 2006, about 16,000 people opened accounts within the first two years, according to a strategy paper prepared for Villaraigosa's office and United Way of Greater Los Angeles by Manuel Pastor, director of the USC Program for Environmental and Regional Equity.
Banks have been slow to open branches in low-income neighborhoods, where storefront operations have proliferated in their place. According to research by the Pew Charitable Trust, these high-cost alternatives now outnumber traditional banking institutions in Los Angeles, with 944 check-cashing outlets, 312 payday lenders and 85 pawnshops identified in 2006, compared with 694 bank and credit union branches.
Such services can cost a typical user up to $1,000 a year, according to a 2008 study for the Brookings Institution Metropolitan Policy Program.
Murillo, a father of three who cooks at a Mexican restaurant in Torrance, gave up 1% of his $357 weekly salary to cash his paycheck at a local supermarket. Other services proved even more costly. A $45 parking fine increased to $100 when his money order disappeared in the mail and he could not prove he had sent it. Still, for 18 years, Murillo did not dare open a checking account because he found the whole process "mystifying."
The new initiative, which Murillo is helping to promote, will include a multilingual marketing and education campaign, in which local nonprofits such as United Way and the Community Financial Resource Center in South Los Angeles will tout the benefits of banking and teach families how to manage an account.
Instead of a Social Security number, participating banks in Boyle Heights, Vernon-Central, Westlake and Pacoima will accept other forms of identification, such as consular IDs issued by Mexico, Guatemala and other countries. If successful, officials hope to take the program citywide.