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Kevin Wack is a Los Angeles-based reporter for American Banker.
CONSUMER CROSSROAD: An American Banker reporter spent a day trying to complete basic banking tasks at a mini-hub of nontraditional financial providers on the corner of South La Brea Avenue and West Pico Boulevard in L.A. that includes this Nix Financial check-cashing store. (photo: Kevin Wack)
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What I Learned While Pretending to Be Unbanked

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LOS ANGELES — If you live in a big U.S. city, you probably whiz through an intersection like this one all the time.

On the southeast corner of South La Brea Avenue and West Pico Boulevard sits a payday loan shop. In the same strip mall is a 7-Eleven that sells financial products to consumers who don't have bank accounts. And just to the west is a check cashing store. Taken together, these nonbank retailers form a mini-financial hub for residents of a hardscrabble neighborhood that abuts the showy wealth of L.A.'s West Side.

At lunchtime Wednesday, all three stores were doing a brisk business. Inside an Ace Cash Express location, a clerk asked an elderly customer, who was leaning on a walker, for his address. It was a question without a good answer. "Right now I'm in the hospital," the man explained.

On a more typical day, I might have been one of the motorists driving past this corner without much thought. But today I was here as part of a team of white-collar types who were trying to walk in the shoes of the unbanked. We dressed down, but our efforts to blend in only went so far. In a move that verged on self-parody, we'd arrived at La Brea and Pico in a chauffeured town car.

The exercise was organized by the Center for Financial Services Innovation, a Chicago-based organization that gets support from various banks and foundations, as part of "Emerge: The Forum on Consumer Financial Services Innovation," a three-day conference held by the center and American Banker focused on improving consumers' financial health.

We'd been given a series of tasks to complete: buy a prepaid card, purchase a money order, cash a pair of checks and so on.

Every transaction took longer than it seemed like it should, but still, our money quickly started to dissipate. We were charged $6.15 to cash a $105 check, then another five bucks to send a $40 money transfer. In one store, we peered at the fee schedule posted on the wall: to borrow $100, we'd pay $17.64, which translates to a 460% annual percentage rate on a two-week loan.

It all brought to mind James Baldwin's famous quote: "Anyone who has ever struggled with poverty knows how extremely expensive it is to be poor."

Some of what I saw surprised me, even though I frequently write about financial services for the unbanked.

First, it looks to me like it will be a long time before check cashing and the various related financial services become fully automated.

The 7-Eleven store that we visited had an ATM that customers can also use, at least in theory, to cash checks and receive money transfers. The process didn't work for our group. The ATM took our photo, and instructed us to make a phone call to complete the registration process. But after being transferred twice, we eventually gave up.

The Ace Cash Express store had no self-service kiosks, just an old-fashioned queue to speak with a clerk. When we got to the front of the line, it became more apparent why many stores in this industry look like dinosaurs: we had to provide a lot of detailed personal information in order to complete some fairly simple transactions.

Later, when we walked into a nearby JPMorgan Chase (JPM) branch, the contrast was striking. Customers were directed to touch-screen kiosks. The teller window was hidden in the back, completely out of sight to most visitors.

Another surprise came near the end of the day. While we'd been trying to complete our various transactions, one member of our team, perhaps naively, had turned over a raft of personal information, including her Social Security number and her date of birth.

Later we spoke with an entrepreneur who knows the payday loan industry inside and out. He said that it was a mistake to trust the store with sensitive personal information. "You'll have a fun bombardment of offers," he said sarcastically.

In the end, the distance between the actual customers of these stores and gawking interlopers like me seemed vast.

The abundant signs printed in Spanish attested to the difficulty many recent immigrants have in opening bank accounts. Other customers have lost their banking relationship, and probably aren't getting a new one anytime soon.

One older man was talking on his cellphone while he stood in line at the check-cashing store. "I didn't write that check," he said, over and over again.

Kevin Wack is a Los Angeles-based reporter for American Banker. The views expressed here are his own.

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Comments (11)
This is excellent reporting. Note that opening a bank account requires the same kind of personal disclosures, but you only have to do it once and in an environment conducive to believing that your privacy will be respected.
Posted by masaccio | Thursday, June 05 2014 at 12:30PM ET
not sure what the point is....Washington requires identity or knowing your customers, not assuming excess risks and growing capital through earnings...taking care of the unbanked is not within their business models unless mandated as another managing society Washington policy. As a result for-profit shadow banking activities have emerged with pricing skewed to be excessive but necessary to cover the cost of risk and transaction size. The only answer is automating the processes, educating the under-banked, creating a better job environment or just forget trying to solve the problem and let the Post Office do it.
Posted by Rhsmith999 | Thursday, June 05 2014 at 1:00PM ET
The poverty tax is alive and well! Economic self-reliance, parity and power for the underserved is an imperative. When the US Census bureau (2010) reports 90% of household growth will happen in the lower income segment for 10 years and there will be ~$104billion spent in fees & interest for short & very short term loans in 2014 (up ~8% YOY for the past 2 years) (see CFSI's latest), and excluded from this number is the plethora of other revenues from this segment, something must be done!!

A rather enlightening experience Mr. Wack. Mine in NYC (Harlem) was much better. Carver Federal (using Chexar) was wonderful. My check was cashed swiftly. I too shared info and received no addt'l offers. My visits to purchase money orders & the like was also good. A HUGE thanks to the wonderful people at CFSI! Ace Cash Express presents a wonderful opportunity for banks to leverage the reach via partnership (or acquisition). F/I's understand the segment's opportunity, but experience trepidation when considering the reputational risks. Advocacy groups & the like may apply pressure without offering viable solutions and we've seen the outcome. This summer millions of consumers will be pushed back to payday lenders. The unintended consequences of getting banks out of "high cost" lending, is highER cost lending for the end users. In the final analysis, we must ensure that we help the very people we aim to. Voice of Customer is a very valuable piece of data. F/I's can certainly charge less. However, in exercise strategies to do so, they run the risk of being accused of attracting usage which not one bank is willing to endure. Unfortunately, they may choose to negate the risks all together and simply not participate. Did you catch what I mentioned is happening this summer? Added costs of regulation and "court of public opinion" trials & execution do more harm than good for the people that have a "bit more month at the end of their money." This perpetual cycle saddens me deeply.

No! Don't give away anything. But help the segment, the advocacy groups, regulators and businesses to (in the words of CK Prahalad) "...stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers & a whole new world of opportunity will open up."
Posted by kwright325 | Thursday, June 05 2014 at 5:02PM ET
When considering the inherent compliance risks, the high cost of maintaining and staffing the requisite retail locations; not to mention the lower liklihood of fostering and growing long-term and mutually beneficial client relationships with this particular customer segment, it is quite easy to understand why the relative costs are where they are with the aforementioned transactions. Keep in mind, these are transactions for immediate services rendered that we are talking about, not long-term clients; thus, the fee levels make complete sense.
Posted by NYBankers.com | Friday, June 06 2014 at 12:37PM ET
The zeal of the federal examiners for Bank Secrecy Act exams will only ensure that "marginal" people will continue to lose their bank accounts. There is immense pressure placed on banks to close the account of ANY consumer who has even slightly "weird" transactions. Sure, you can try and "justify" why the accounts are okay, but at the end of the day, the fight with the examiners just isn't worth it. So the accounts get closed, the examiner is happy that they were able to enforce their personal opinions, and more and more people are pushed to these expensive non-bank providers.

Adding insult to injury, the DOJ launches "Operation Choke Point" to put these providers out of business. This will only push the "marginal" populations further underground and straight into the hands of criminal enterprises that will be more than happy to provide services and "protection" - at a price.

Well done Regulators!
Posted by PRLynn | Friday, June 06 2014 at 12:41PM ET
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