The Los Angeles City Council recently took a step toward creating a program that would offer banks incentives to open branches in under-served neighborhoods.
The 15-member legislative body on October 30 gave preliminary approval to a proposal offered by 7th District City Councilmember Richard Alarcón, who serves as chairperson of its Jobs & Business Development Committee. The action directs the City Attorney to draft an ordinance that would establish "banking development districts." The draft is expected to be considered by the City Council, and a subsequent vote in its favor would send the matter to Mayor Antonio Villaraigosa, whose approval would be required for a new ordinance to take effect.
Alarcón's proposal calls for banks and credit unions participating in special districts to receive a guarantee of certain amounts of deposits from the city. The financial institutions would also be eligible for property tax breaks and the possibility of fast-tracked approvals for establishing new locations in under-served neighborhoods. The San Fernando Valley-based representative said that his proposal is based on a successful program in New York.
"Banking development districts are a win-win-win, allowing the city to leverage our assets to benefit the banks that open in under-served areas, benefiting the city through increased economic activity, and benefiting residents, who will now have access to the financial mainstream where they can save money and build credit and create a financial safety net for their family," Alarcón said.
Many large banks have traditionally avoided establishing branches in relatively low-income neighborhoods because it's difficult to attract significant totals of deposits in such areas. Banks typically use deposits from customers with savings and checking accounts to make loans to borrowers. Banks seek to profit by making loans and collecting interest rates from borrowers that are higher than the rates they pay out on savings accounts and other financial instruments.
Many neighborhoods in Los Angeles are home to large numbers of illegal immigrants, a group that is among the most likely to lack any accounts with banks. That has changed to some degree in recent years, as several large institutions have begun to accept matricula consular cards — issued by the countries of origin of some immigrants — as a valid ID to establish accounts.
Recent research indicates that there remains, in any case, an estimated 300,000 households in Los Angeles without a checking or savings account. The Brookings Institution, a non-profit public policy and research organization based in Washington, D.C., estimates that an average household that has no bank accounts pays more than $700 a year to carry out simple financial necessities, often spending the money on check-cashing services and money orders to pay bills.
Los Angeles has 944 check-cashing outlets and 312 payday lenders compared to 694 bank and credit union branches, according to city officials. It is estimated that check-cashing outlets collect more than $54 million in fees every year in the city, while payday lenders collect $88 million in fees.
Sam Hassan is a writer for the L.A. Garment & Citizen.
Photo from cd7.lacity.org
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