Many area Hispanics face cost of being ‘unbanked’

Aug. 30--

Benito first came to the United States 22 years ago to pick crops on a tourist visa.

After the visa expired, he stayed here, working two jobs and raising a family in Austin, cashing his paychecks at a check-cashing store and avoiding banks.

"Going into the store was easy to get money in cash," said Benito, speaking in Spanish through a translator. "Going into the bank was complicated."

Today, however, Benito has direct deposit, automatic bill paying and a separate account for emergencies. Benito -- who asked that his last name not be used because he is not in the country legally -- also has a credit card he pays off monthly, creating a credit history.

He is no longer a statistic as an "unbanked" or "underbanked" consumer, in part thanks to a financial class sponsored by the United Way for Greater Austin.

A significant number of American residents forego traditional banking in favor of cash, pre-paid debit cards, payday loans or other alternatives.

One in 12 U.S. households, or 17 million adults, don't deal with banks or credit unions, according to the latest survey by the Federal Deposit Insurance Corporation. One in five households, or 51 million adults, have some traditional banking services but are considered "underbanked" and often use check-cashers, payday lenders or pawn shops.

For Hispanics, the percentages are higher. One in five U.S. households don't use traditional banking services and almost 30 percent are considered "underbanked."

Hispanics are among the most likely to never have a bank account and to use alternatives to traditional banking, according to the FDIC survey.

It is not just people who are here illegally. According to the FDIC, three of every four survey respondents without any banking services are U.S. born.

Statistics for the city of Austin are estimates only, but local United Way officials say there are at least 8,380 Hispanic households, or 10 percent of all Hispanic households, with no bank accounts and another 19,275, or 23 percent, who are considered "underbanked."

That has real-world consequences, especially for Austinites living paycheck to paycheck.

"Half of our population has trouble making ends meet," said Sarah Janecka, United Way's director of financial opportunity.

She said Austinites who deal only in cash and never create a credit history might have difficulty getting a job or an apartment because employers and landlords use credit history as an indicator of reliability.

She is also critical of the fees paid to check cashers, saying a 2010 study by United Way showed fees can add up to almost $1,000 a year.

"People are paying money to get their money," Janecka said.

Ed D'Alessio, executive director of Financial Service Centers of America, defends the industry.

He said as many as 60 percent of the industry's customers have bank accounts but still use check-cashing services.

"It's not an either-or," D'Alessio said. "It's what fits their needs."

He said many customers need cash from their paychecks immediately because they don't have large enough bank balances to wait for the checks to clear before paying bills.

At most check-cashing stores, D'Alessio said customers find one-stop convenience -- able to wire money, buy pre-paid debit cards or money orders, or pay bills through third-party bill-paying networks.

He said check-cashers tend to locate near their customers and are open longer hours than banks or credit unions. In the case of Spanish speakers, D'Alessio said, check cashers are more likely than banks or credit unions to have staffers who speak the language.

In the FDIC survey, convenience and quick access to money were cited as top reasons people use alternative financial products.

"It's not anything more complicated that delivering the services that people need at that point in time," D'Alessio said.

United Way is addressing the issue with financial education classes taught by another nonprofit, Cornerstone Financial Education.

The course, focusing on money management, is offered at workplaces, neighborhood centers and schools.

Benito, who took the course at his son's school, said the class taught him discipline.

"Honestly, what United Way helped me with the most was to budget my money, and to be able to separate my expenses against my income, and to pay my bills ahead of time instead of waiting until the last minute," he said.

United Way also leads a coalition of banks and credit unions, called Bank on Central Texas, with the aim of bringing more people to mainstream banking.

Brandy Conway, a vice president for Greater Texas Federal/Aggieland Credit Union, and Mark Curry, Wells Fargo's community bank president, echo a common experience trying to expand their customer base.

"We find that the underserved or underbanked consumers did not grow up exposed to mainstream financial institutions, so they don't know the benefits," Conway said. "Or others have had a bad interaction or relations with a previous financial institution."

For customers with no or bad credit history, Conway said the credit union offers a "secured credit card." The customer deposits a minimum of $500 to secure credit card payments -- in essence borrowing from himself to create a successful credit history.

Curry said the key is educating the public about the need to manage their money -- no matter how small the amount.

Checking accounts can be started with as little as $25 at Greater Texas and $50 at Wells Fargo.

"You can build your financial future at $35 or $45 at a time, but you have to start," Curry said. "We show you how to start."

That initial account can lead to credit cards for small amounts and eventually home mortgages or business loans as the customer grows and succeeds.

"If we're successful, we think we have an opportunity for a customer for life," Curry said.

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¡Ahora Sí!

As the Austin area rapidly changes, the American-Statesman is providing in-depth coverage of the culture and issues of a fast-growing Hispanic population. Get more community coverage in our free weekly Spanish language newspaper, ¡Ahora Sí! and online at ahorasi.com.

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