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Citizens Union


NEW YORK — There's a joke about banking: That it's only for people who don't need it.

If you really need a loan you won't qualify, but if you don't it'll always be available at a low interest rate and with a smile. Like most humor, there's truth in it.

New York City's Association for Neighborhood and Housing Development studies how the federal government's attempt under the Community Reinvestment Act to make banks serve the communities they operate in actually affects low-income neighborhoods in the city. The findings aren't very good.

Banks are bringing in record earnings but ANHD finds their investment insufficient "to truly help meet the credit needs of low- and moderate-income New Yorkers." They report the city's 23 largest banks have deposits in the city exceeding $590 billion but lend or invest only 1.35 percent of it in a way that benefits low- and moderate-income residents.

That's an amount they say is insufficient "to satisfy their obligations under the CRA."

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More is less. Deposits are up and so is lending. Again, it's just that little of it goes to low-income neighborhoods. ANHD found lending for multifamily properties is "steeply" down in low- and moderate-income neighborhoods and of course low- and moderate-income people live in multifamily rental units.

CRA-qualified lending doubled in 2010 as the economy recovered but investments and lending to nonprofits in New York City decreased 30 percent.

Even given that so much "community reinvestment" bypasses moderate- and low-income people, the ANHD study asked how much reinvestment is enough.

Even with average re-investment of 1.35 percent, the study found several banks — Bank of America, JPMorgan Chase, Sovereign, Apple Bank, Astoria, Emigrant, Ridgewood, Morgan Stanley, Deutshe and Bank of NY Mellon — each reinvested less than 1 percent of their New York City deposits in New York City.

JPMorgan reinvested just .36 percent of its more than $256 billion in city deposits and Duetsche Bank just .35 percent. Two smaller banks, Emigrant and Astoria Savings Banks, reinvested .18 percent and .15 percent respectively.

ANHD says 5 percent is a fair minimum for re-investment. That minimum would pump another $12 billion into the city's economy from JPMorgan alone.

That kind of financial investment in underserved communities is absolutely vital to those neighborhoods and residents, but it might not be the most critical thing banks fail to provide.

In the era of megabanks, too large to fail, merging and buying out smaller institutions, there's immense competition for wealth management services and private banking for multi-millionaires but diminishing interest in vital banking services for low-income and poor people.

The four biggest American megabanks — JPMorgan Chase, Citibank, Bank of America and Wells Fargo — have over 61 percent of all New York City deposits according to ANHD. They also have about half of all city government deposits in their banks amounting to over $230 million. But they're not looking for low-income city resident depositors.

According to the FDIC, 8 percent of American households are "unbanked," meaning they have neither a checking nor savings account. The number is as high as one in four in poor neighborhoods. It may be higher in New York City where both the poverty rate and the cost of living are higher.

Last month I submitted public comments to the Office of the Controller, the FDIC and the Federal Reserve, America's three big bank regulators, about the Community Reinvestment Act, along with Dr. Al Arterburn. Arteburn formerly worked as an economist for the federal government. We wanted to make the case that banks should provide basic services to poor and low-income Americans at affordable costs. But, of course, they usually don't.

Poor and very-low income consumers desperately need basic services like checking and savings accounts. They need them far more than high income consumers do but bank imposed minimum balances, service fees, check charges and punitive penalty fees often make it unreasonable for low-income people to establish or maintain accounts.

"The ability to open and maintain checking accounts is important to those underserved consumers because an inability to have those services requires them to utilize very expensive and sometimes predatory check cashing services, to incur expensive money order or similar charges, to endure the inconvenience and expense often involved in these services and exposes them to often unregulated and sometimes unreliable operations," we wrote.

Of course, it also makes it more difficult to pay bills on time and impossible to save.

These aren't theoretical concerns. Our letter was sent on behalf of and at the request of Care for the Homeless clients in New York City, based on their first hand experiences.

They know that without an account they can't have direct deposit forcing them to pay up to $7 to cash a check and incentivizing them to carry cash. They know not having checking means payments for necessities requires buying a money order. They know without a savings account their difficult struggle to save $5 a paycheck is likely to fail.

They've lived the unpleasant and dangerous inconveniences the inability to use direct deposit, automatic savings or on-line payments force on them.

"Pay day" loans are illegal in New York, so check cashing services in New York aren't allowed to offer them, or any loan above the state's 16 percent usury limit. "Loan-sharking" has always been illegal, yet in the cash and costly world of check cashing apparently pay day-type loans are sometimes available.

The CRA is perhaps the best tools bank regulators have to incentivize financial institutions' involvement and investment in their communities. It operates through bank regulator evaluations of individual banks performed about every 2-to-4 years.

The CRA has been used to push banks to reinvest and has helped reign in "redlining" of poor communities, the long-time practice of not offering mortgages in "bad" neighborhoods.

Though the Federal Reserve website invites comments because they and the other regulators are "currently considering what can be done to make CRA a more effective regulatory incentive going forward to address an unprecedented set of community needs," the CRA has never even rated the availability of basic banking services for underserved consumers.

Enter New York City and the "Responsible Banking Act." Enacted by City Council in 2012 by a 44 to 4 vote over the Mayor's veto, the Responsible Banking Act sets up a Community Investment Advisory Board to review how well financial institutions serve low-income neighborhoods and requires an annual report that the city Banking Commission must consider in determining which banks are eligible to get city government deposits.

Currently 25 institutions are eligible, including JP Morgan Chase and Bank of America.

There's been a glitch, though. When the New York City Banking Commission approved the current eligible depositories on May 13, 2013, it didn't take the annual review into consideration. Actually, there has been no review and no annual report.

More precisely, the Advisory Board required by statute hasn't been fully implemented and awaits appointments by city officials, including by Mayor Michael Bloomberg's administration.

Crain's New York Business reported last week that City Council Speaker Christine Quinn sent a letter to the Bloomberg administration urging them to select a candidate soon.

In fairness, the city has recognized the problem of lack of access to banking, too.

A 2008 city neighborhood financial services study concluded "for many low-income households, banking has become costly, unpredictable, and out of step with their actual needs" so "hundreds of thousands of New York families living on low incomes choose to remain 'unbanked' and "rely on 'fringe' financial service providers such as check cashers and pawnshops."

With 13 percent of New Yorkers unbanked, almost double the national average, Manhattan Borough President Scott Stringer launched the "Bank on Manhattan" program to identify better services for poor families.

The Mayor's Office of Financial Empowerment encouraged the unbanked to open accounts through their NYC Safe Start program.

But the numbers of unbanked moving to banking really hasn't moved.

This is hardly a theoretical problem. Surveys show poor "unbanked" people spend hundreds of dollars annually on check cashing and hundreds more on money orders. And what's the value of automatic savings to struggling very-low income people? Think of it as priceless.

Jeff Foreman is policy director at Care for the Homeless. Follow him on twitter at @JeffForeman2.

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