Bank on Houston program keeps money where it belongs.
It’s time to declare war on the predatory, high-cost payday loan companies and check-cashing stores that are draining $70 million a year out of the struggling economies of our poorest neighborhoods. In my final term as Houston City Controller, I am working with other leaders on several economic development initiatives that will help stabilize families and individuals on the financial edge, strengthen neighborhood businesses, and improve our economy.
The first is Bank on Houston, a collaborative effort to bring people without bank accounts—including some of the poor, working poor, and those with bad credit—into the financial mainstream by helping unbanked residents open free starter checking accounts. This effort could have a multimillion-dollar economic impact on the Houston economy without costing Houston taxpayers a cent.
Remember when opening a savings account was a rite of passage for just about every child? Parents and child, with piggy bank in hand, would head down to the neighborhood bank or credit union and open a savings account. Each gift of money from grandparents, aunts, and uncles was recorded in that little passbook the child received upon opening his or her new account. It was exciting to watch the balance grow year to year.
This was how many of the Baby Boom children of depression-era parents were introduced to the banking system and the importance of safeguarding their personal finances. Unfortunately, in many families, this is not the case because of cultural or perceived economic barriers or past problems with bank accounts.
An analysis conducted by the city’s Planning and Development Department found as many as 51 percent of residents in the low-income African-American and Latino-dominated neighborhoods that ring the north, east, and south sides of downtown do not have bank accounts and are victims of the second-tier predatory financial system. It is estimated these residents pay $70 million each year in fees to non-bank check cashers and payday lenders. In addition to high fees, residents without bank accounts do not have safe places to keep money. They carry it in their pockets or stash it under the mattress at home, often becoming robbery targets.
We had a firsthand look at some of these issues in the aftermath of Hurricane Katrina. Many of the evacuees who were trapped in the city were unbanked, literally losing their financial nest eggs to the floodwaters. But once the water receded, a new problem became apparent. Many of the evacuees were receiving disability or child support payments. Some were awaiting desperately needed final paychecks from struggling companies. Those checks stacked up in the New Orleans Post Office with no forwarding address. Had they been direct deposited to a bank account they would have been available almost immediately from anywhere in the country.
If we can connect these folks to banks, they will be able to keep more of their hard-earned dollars in their pockets. If we can connect these folks to banks, they can begin to build wealth and financial security because they will have a critical component of a credit history, which will open up access to mortgages and other tools of asset building.
My partners in this effort are the City of Houston; the FDIC (Federal Deposit Insurance Corp.); the National League of Cities; the Federal Reserve Bank of Dallas, Houston Branch; and local banks and credit unions. The program is modeled after the very successful Bank on San Francisco effort that helped more than 11,000 unbanked San Franciscans open bank accounts in just the first year after its 2005 launch. More than 40 banks and credit unions, including Wachovia Bank, Bank of America, Washington Mutual, and JPMorgan Chase, have joined Bank on Houston. A steering committee will be selected to develop the Houston Account. I envision:
• No monthly minimum balance requirements;
• Bounce-proof features that lower thelikelihood of overdrafts;
• Acceptance of alternative identification, such as Consular ID cards;
• Financial literacy training for thosewith bad credit histories. We are enlisting groups like NeighborhoodCenters, the United Way of Houston,and Houston Asset Building Coalition to help with this component.
Many of the banks and credit unions already offer starter and second-chance accounts. What we will bring is a comprehensive and coordinated marketing campaign and the community-based organizations that already know and work with the target markets.
Studies have shown that people who are set free from the shackles of payday loan companies, pawn shops, and check-cashing stores spend a significant portion of their savings in their neighborhoods. Research by the Brookings Institute found that a full-time worker without a checking account could save as much as $40,000 during his or her career by utilizing a low- or no-cost checking account instead of check-cashing services.
Bank on Houston can help address the cycle of debt that keeps the working poor and those with higher incomes but bad credit from building savings and assets. In the process we will strengthen Houston’s long-term economic vitality. That will benefit us all.
The city is upgrading its antiquated 20-year-old phone system and must change most city government phone numbers. Old phone numbers are designed to roll over to the new ones for about three months. If you have trouble reaching an office, please dial 311. The Controller’s Office new main phone number is 832/393-3460. My email remains the same, [email protected]
Annise D. Parker is Houston’s third-term city controller and one of the highest-ranking openly GLBT-elected municipal official in any of the 10 largest U.S. cities. Her website is www.houstoncontroller.org. Parker’s television program, Money Matters, airs Monday on the Municipal Channel (Comcast) at 2 and 8 a.m. and 2 and 8 p.m. The City Controller’s webpage is www.houstontx.gov/controller/index.html. To receive the controller’s newsletter, send an email to [email protected]