As published by Crain's Cleveland Business>
A new project targeting Akron and Summit County aims to fix one of Northeast Ohio's underlying symptoms of economic inequality: proper and affordable access to financial services for those who need it most.
But truly correcting that complex problem involves undoing years — and in some cases, generations — of mistrust lower-income citizens harbor against banks, while simultaneously encouraging those institutions to develop products that work both for them and that financially vulnerable demographic.
The city of Akron, in partnership with United Way of Summit County, in November was awarded a $90,000 grant by the New York nonprofit Cities for Financial Empowerment Fund as part of its nationwide Bank On initiative to establish a local coalition dubbed Bank on Rubber City. The grant covers the salary of a two-year fellowship position that will oversee those efforts, which involves bringing together stakeholders including local government, nonprofits, consumers and banks themselves.
While there are now 70 active Bank On coalitions — and another 20 in different pre-launch phases — across the country that have formed in the past decade, this marks the first one targeting an Ohio market.
Of 20 groups that applied, Akron is one of five cities or regions awarded one of these new fellowship grants to spur the formation of a local coalition. The intent is for the coalition to support those efforts itself when the grant expires.
The city of Cleveland did not apply for the fellowship grant, said David Rothstein, a principal at the CFE Fund and director of the national Bank On movement who is based in Cleveland. But Rothstein said he's still in contact with groups in the city about launching a coalition there in another way.
Rothstein said a driving reason Akron was selected was because of the collective buy-in from groups like the United Way and the city, and interest from local financial institutions.
"We are trying to build a substantial movement, and these local groups based around the fellowship are a huge part of that," Rothstein said. "We wanted to make sure the city or country of places we choose put a lot of weight behind this."
The other grants target New Haven, Conn., which has some of the largest gaps between rich and poor in the country; the Florida Suncoast; southern Alabama, which is one of the most underbanked regions of the country; and Houston.
"From the city perspective, the fiscal health of residents is tied to the fiscal health of the city," said Annie McFadden, Akron deputy chief of staff. "It's an important issue (Mayor Dan Horrigan) wants to push and get the gravitas of city administration behind … because we want to make this a priority for residents. The ultimate goal would be to make financial empowerment and access to financial services a public right."
According to a 2015 report (the most recent) by the Federal Deposit Insurance Corp. and the Washington, D.C.-based nonprofit Corporation for Enterprise Development (which recently rebranded as Prosperity Now), 7% of U.S. households were unbanked that year, meaning no one in the house had a checking or savings account.
An additional 20% were underbanked, which applies to households in which someone may have a checking account, but still relied on alternative financial services, such as payday loans, check-cashing services or refund-anticipation loans.
In that study, 57% of unbanked households cited not having enough money to keep in an account as a driving reason for their situation.
Locally, according to CFED, 13% of Akron households are currently unbanked. That's nearly twice the national average. Another 20.5% are deemed underbanked.
Meanwhile, according to United Way, 57% of Akron households earn less than Ohio's basic cost of living. And when considering an average full-time worker without a bank account is estimated to spend $40,000 over their lifetime on check-cashing services alone, the impact the lack of access to proper banking services becomes striking.
"That's money you're sucking away from a person who could otherwise have that money to spend elsewhere," said Greg Sain, a staff attorney with Akron's Community Legal Aid who's worked with the lower-income population for decades. "It's this way, unfortunately, because of the way the payday loan industry is condoned in the state of Ohio. It means people are separated from their money without really a value of return."
The payday loan industry is a factor in all this. While it serves a short-term lending need banks often don't service, the terms on loans effectively force financially vulnerable borrowers into a cycle of debt.
And while some discussions are happening today with Ohio lawmakers to close loopholes that, according to the Small-Dollar Loan Project of The Pew Charitable Trusts, allow those alternative lenders to charge typical annual percentage rates of 591% — which is up to four times what borrowers pay in other states, like Colorado — lawmakers have failed to enact meaningful change as industry lobbyists resist anything they tend to claim would damage the survival of those businesses.
It's expensive being poor
"From our clients' perspectives, it's hard to keep a bank account for a variety of reasons, including their income is so limited and they're living so close to the edge that any unexpected expense sends this spiral of overdraft fees and insufficient funds fees," said Katherine Hollingsworth, a staff attorney with the Legal Aid Society of Cleveland.
That forces those people to turn to payday lenders and other alternative services, often as many get blacklisted from opening bank accounts after overdrawing and failing to maintain minimum balances banks tend to require.
"They get into this hole they can just never get out of," Hollingsworth said. "We often talk about how expensive it is to be poor. And it gets to be very expensive to be in that very-low income bracket."
But the issues with underbanked and unbanked households, as Sain points out, are complex.
As a banking market, Akron doesn't have any true hometown banks left following Huntington Bank's acquisition of FirstMerit. There are just 159 branches in that market today, according to the FDIC, and many are difficult for lower-income people to reach. And mobile banking isn't helpful when you can't afford a smartphone, Hollingsworth points out.
And lower-income demographics have been "historically marginalized" in the past, Sain said. That's what bore the Community Reinvestment Act of 1977 to address the practice of redlining by banks: the practice of denying services to lower-income people by avoiding the areas they live in, or otherwise achieving that by pricing them out of products. Practices like that have created a deep-seated distrust of banks for some consumers that could be passed on to their families.
More recently, the mortgage crisis, which hit Ohio and its poorer regions in the Northeast especially hard, only made matters worse.
The working poor build wealth through home ownership, notes Sheri Dozier, director of economic opportunity for Cleveland Neighborhood Progress. Yet the financially insecure in Northeast Ohio who lost their homes are either distrustful of banks, have credit histories that preclude them from the sort of loans they need, or both.
"There's a tsunami of factors that culminated into why this has more deeply impacted Northeast Ohio," Dozier said.
And while many banks focus on financial literacy for these people, many of them don't have the luxury of taking a multi-week course on maintaining budgets when they need money yesterday to pay bills, keep their car or feed their kids.
"The transferring or knowledge of financial literacy is not enough," she said. "The real work happens through the integration of products."
Going national with local solutions
Adrienne Bradley, director of financial empowerment for United Way, notes that education is part of the plan for Bank On Rubber City. It still remains a critical part of the solution.
But education also involves trying to repair that distrust of banks.
The goal of the program, which the coalition intends to fund and support beyond the grant — which will pay for Nicole Chavers as the corresponding fellow, a banker from the market who has worked with Huntington for 15 years — is to "financially empower" 11,000 people by 2025.
That means increasing credit scores, decreasing debt, creating banking relationship and decreasing use of payday lenders and other alternative financial services, Bradley explained.
A brick-and-mortar facility where financial coaching and outreach will be based in Kenmore is part of the effort. It's expected to open in the first quarter of 2018.
Meanwhile, the coalition will work with banks to create products for lower-income people that meet Bank On national account standards. Those include accounts with low, waivable or zero fees, minimum required balances of $25 or less, cheap money orders and zero overdraft penalties.
An example of that would be KeyBank's Hassle-Free account, Rothstein said, which meets those Bank On national standards. (Key, Huntington, Fifth Third Bank and Wells Fargo, whose contributions to the CFE Fund helped support these grants, are just some of the institutions that will be working with the coalition.)
The intent is for groups to come up with products that will then be offered nationwide, not just in Northeast Ohio silos. In theory, those efforts should lead to change across the country in terms of supporting the nation's un- and underbanked.
"It's all about building momentum," Rothstein said. "What Akron is doing should have ripple effects in markets where all these banks are located."
Saino added, "This is absolutely a step in the right direction. People have to come together on this. And if the people in the banks work on developing positive working relationships with these people, there's no reason both cannot be successful."