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Weekly UpdatesThe Bank on San Francisco program won the 2008 Louisville Award for Innovation in Government Finance. The Government Finance Officers Association gives this special recognition to acknowledge exceptional accomplishments that introduce new concepts or techniques with enduring value to the government finance profession.
Like most cities, San Francisco is a city of two different financial services systems. In one, people may choose from a variety of institutions to safely save and access their income, obtain loans to buy homes and build businesses, and create financial stability and prosperity. But for many San Franciscans, there are seemingly insurmountable obstacles to accessing this system. They turn to check cashers, payday loan providers, pawn shops, auto title lenders, and rent-to-own stores. These alternative providers charge high fees and can mire individuals in a cycle of debt, even if they work hard and earn a paycheck week after week. Individuals are hard-pressed to build savings and assets if they rely on check cashers to conduct their financial lives. This problem is not unique to San Francisco. In fact, one in four Californians--and an estimated 22 million Americans--are "unbanked," meaning they lack access to a basic checking or savings account.
An estimated 50,000 San Francisco households are unbanked, and it was incumbent upon the city to take action and assist these citizens. Families that rely on check cashers can spend approximately 5 percent of their income each year to cash checks and pay bills. Those who least can afford it are charged 3-10 percent of the value of their checks just to access their own money. Unable to build assets and save for the future, these families are particularly vulnerable in times of crisis, and they are more likely to become victims of crime. In the event of an emergency such as a fire or an earthquake, these families risk losing everything and will be unable to access needed funds remotely.
In response to this obvious need for better financial products for city residents, the San Francisco treasurer's office created Bank on San Francisco. This initiative is a collaborative effort, along with the Federal Reserve Bank of San Francisco; EARN, a non-profit organization that matches the savings of low-wage workers and helps them invest in assets that build wealth; and 17 local banks and credit unions. San Francisco is the first city in the nation to seek to address the problems faced by the unbanked, helping all citizens make the transition into the financial mainstream.
In late 2005, the mayor and treasurer's office challenged every bank and credit union in San Francisco to form a partnership with the city to create Bank on San Francisco. The program emerged one year later, committed to the ambitious goal of getting banking services for 10,000 unbanked San Franciscans during the first two years of the project. Less than a year into the program, this goal was exceeded. Through Bank on San Francisco, 11,000 checking accounts were opened in the first year. In light of this achievement, the program is now on track to open 20,000 new accounts by the end of 2008.
THE SOCIAL COST OF NOT HAVING A BANK ACCOUNT
People who do not have bank accounts pay more than those who do to conduct their daily financial lives. In addition, families without accounts don't have a safe place to keep their money. They walk around with wads of cash in their pockets or keep it at home in a coffee can. Robberies are more prevalent around check cashers, especially on payday. Unbanked individuals are especially vulnerable in the event of a disaster. Seven of every ten Hurricane Katrina evacuees did not have bank accounts. Their savings washed away with the rest of their belongings, and without direct deposit, they had no way to access payments such as social security or wages remotely.
A bank account is the first step to financial security. Without one, it is harder to get well-priced car loans, credit cards, or mortgages--the financial tools needed to climb the economic ladder. When Bank on San Francisco was created, no other major American city had launched a comprehensive policy initiative to bring its unbanked residents into the financial mainstream. Cities are well-positioned to play a catalytic role in working work with banks, community groups, and other stakeholders to build an inclusive financial system. To this end, San Francisco worked with financial institutions to reach the following goals:
* Increase the supply of starter account products for the low-income unbanked market.
* Raise awareness among unbanked consumers about the benefits of account ownership.
* Provide quality money management education to San Franciscans. * Clamp down on the proliferation of check cashers and payday lenders.
* Raise citywide awareness of the unbanked problem and potential solutions.
WHY SO MANY PEOPLE ARE UNBANKED
Focus groups conducted with unbanked consumers in San Francisco reveal that they would prefer to have a bank account than use check cashers, but they have serious concerns about the cost of a bank account or are worried they will be denied an account because they have made mistakes with a bank account in the past. Others believe that without a social security card or state identification card, they are simply not eligible for an account. In addition to these "hard" barriers to banking, some believe they do not make enough money to have a bank account or fear they will be disrespected or made unwelcome if they enter a mainstream bank or credit union branch.
The reality is that many financial institutions do not have suitable products to help everyone be successful in banking, and those that do have had a hard time getting the word out in the community. Through Bank on San Francisco, the city worked with banks and credit unions to develop products that would address the needs of the unbanked market. As a result, all the banks and credit unions participating in the program have agreed to the following baseline criteria:
* Offer a low-cost or no-cost product with no minimum balance requirement. The structure of many accounts--with high minimum balances and fees--is a key factor keeping the unbanked out of the financial mainstream.
* Adapt internal systems to allow customers who have been reported to ChexSystems (a network of financial institutions that contribute information on mishandled checking and savings accounts to a central location) to open "second chance" checking accounts. People who make mistakes such as multiple overdrafts from their checking accounts are reported to the national ChexSystems register and are then unable to open another account for five years. Bank on San Francisco partners have agreed to overlook the ChexSystems report and work with clients to help them open an account,
* Accept the Mexican Matricula and Guatemalan Consular identification cards as primary ID. For many immigrants, the barrier to opening an account is having the proper documentation.
* Expand marketing in targeted, low-income neighborhoods, increase the visibility of appropriate products in San Francisco, and develop new strategies to reach unbanked customers in low-income neighborhoods.
* Provide a minimum of four financial management training sessions in the community per year.
* Work with non-profit organizations in San Francisco to identify customers who are ready to enter the financial mainstream.
CONCLUSIONS
Bank on San Francisco is an attempt to address a serious, yet solvable, social problem. Through an innovative partnership which draws on the strengths of local and federal government agencies, along with banks, credit unions, and a wide range of community partners, Bank on San Francisco has become the first comprehensive program in the nation to address the needs of the unbanked and set thousands of families on the road to financial security. Finance officers in other cities might also want to consider instituting similar programs to create an environment of financial empowerment throughout their communities.
Understanding the Problem
For those who have never lacked access to banking services, it can be difficult to understand the difficulties faced by citizens who do not have bank accounts. According to an employee with In-Home Supportive Services (HSS) Public Authority (a statewide, publicly funded program that provides personal assistance services to low-income people with chronic and disabling conditions), "One of the services I provide to my clients is to take them to the check cashing store every month to cash their checks and pay their bills. Even I am afraid to go with them to these places because of the high risk of being robbed when you walk out with your cash." He explained that some of his clients have been robbed and lost all of their money for the month on the first day, leaving them with nothing to live on and in danger of being evicted from their apartments when they cannot pay the rent.
The HSS employee contacted Bank on San Francisco for information about the program's services and was connected with a credit union in that specializes in helping particularly vulnerable clients. The first client he took there was a 71-year-old woman who cares for herself and her disabled grandson on about $1,800 a month. She had been using check cashers for 30 years and paying almost $200 a month to cash her social security check and her grandson's disability check., and to pay all of their bills with money orders. This woman now has her monthly income direct deposited into her account at the credit union, where she receives five free money orders each month and has a safe place to keep her money.
For more information, visit the Bank on San Francisco Web site at www.bankonsf.org or contact the National League of Cities Bank on Cities campaign by visiting www.nlc.org/IYEF.
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