New city ID program has Philly CUs balancing growth, fraud risks

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Philadelphia credit unions will have another way to reach underserved groups.

The Pennsylvania Credit Union League is partnering with Philadelphia to promote a program that will provide identification cards to the city’s most marginalized residents.

While these ID cards have a number of restrictions, they could potentially help credit unions attract new members, including undocumented immigrants. This has proved successful in other cities, such as New York and Chicago, where similar IDs are offered. That has helped get consumers into mainstream financial services and away from high-cost services such as payday lenders.

But financial institutions considering participating in the program have some concerns, such as the potential for fraud.

Municipal IDs enable immigrants to “open accounts with responsible financial institutions and gain access to asset-building tools that are key to achieve financial security,” said Pablo DeFilippi, senior vice president of membership and network engagement at Inclusiv.

Reaching marginalized groups

More than 20 other cities currently offer a municipal ID. To obtain the new identification in Philadelphia, recipients will have to prove they live in the city, are at least 13 years old and can provide some kind of identification, like a passport, work permit or birth certificate. Immigration status will not matter, meaning undocumented immigrants can also receive the cards.

Philadelphia plans to launch the program in the spring and expects to issue 10,000 cards in the first year. The application fee for these cards is only $5 for teens and $10 for adults while being free to senior citizens. That is cheaper than the $30.50 fee for IDs issued by the state.

These cards “will be especially useful for people who have experienced difficulty obtaining a state ID due to barriers, including cost,” a spokesperson for the city of Philadelphia said.

The city is hopeful that credit unions and banks will accept the ID for members to open an account. Christina Mihalik, senior vice president of government relations at the Pennsylvania Credit Union Association, said the trade group is working with the city on the program but doesn’t know of any credit unions who will accept the ID yet.

“We see PCUA as a facilitator to bring interested parties together to assist residents, particularly the most vulnerable in need of services and opportunities,” Mihalik said.

The program could help credit unions grow their membership and reach underserved consumers who could be eligible to join their institutions. These ID cards are especially designed for the “most marginalized members” of any given municipality and are especially useful to undocumented immigrants, said Van Tran, a sociologist at Columbia University.

There were about 10.7 million undocumented immigrants in the U.S. in 2016, according to Pew Research. Pennsylvania is estimated to be home to 170,000 undocumented immigrants.

Municipal IDs can allow formerly unbanked immigrants avoid “high-cost fringe providers” like check cashing stores and payday lenders by helping them open a tradition checking account, said Kendra Sena, senior staff attorney at the Government Law Center at Albany Law School, who has studied the impact of municipal IDs. This can help them earn interest on savings and reduce transaction costs, allowing them to stimulate the local economy through spending, she added.

Similar programs in other cities have had success in leading to new accounts at credit unions. Chicago has issued about 30,000 cards through its CityKey ID program since its launch in April, according to Janece Ortiz, director of Chicago CityKey. Some banks and credit unions are accepting those IDs for new accounts, according to Fred Tsao, senior policy counsel at the Illinois Coalition for Immigrant and Refugee Rights, which worked on creating the program.

In New York City, several local credit unions, including Brooklyn Cooperative Federal Credit Union, Lower East Side People's Federal Credit Union, Neighborhood Trust Federal Credit Union, University Settlement Federal Credit Union and Urban Upbound Federal Credit Union, are accepting the 1 million ID cards that have been issued under the IDNYC program.

Lower East Side People’s FCU has opened more than 200 accounts using IDNYC as primary identification, said Alicia Portada, director of communications and community engagement.

“We see the IDNYC as an important step towards allowing all members of our community to aspire for a more inclusive life in this city, and therefore we openly promote the IDNYC throughout our community,” said Rafael Monge-Portaro, CEO of Neighborhood Trust. The $12 million-asset credit union gains a “significant number of new members per year” who use the IDNY as ID to open an account, he added.

Fraud risks

Still, there are concerns about the potential for fraud surrounding the municipal IDs. Credit unions are required to follow the Bank Secrecy Act and meet anti-money laundering compliance standards. PCUA’s Mihalik said the potential for abuse with the ID program was one of the concerns raised during the league’s meetings with the city of Philadelphia.

If a credit union doesn’t run the names of members applying to open an account with a city ID through the Office of Foreign Assets Control, they could open themselves up to money laundering and other types of fraud, said Danny Dukes, managing member of Danny F. Dukes and Associates, a forensic accounting firm based in Canton, Ga.

For instance, there could be holes in the New York City ID program. That city “only loosely identifies residency and apparently the word of someone who holds this card can even validate existence [or] location of the homeless,” Dukes added.

A spokesperson for Philadelphia said it didn’t have any concerns about fraud. The card complies with various federal laws for security such as the REAL ID Act, Patriot Act and some Homeland Security Department standards. The spokesperson added that the city has been in "active conversations" with both the PCUA and Pennsylvania Bankers Association regarding security and program regulations.

In order to prevent fraud by cardholders, like illegal voting or ID theft, the Philadelphia spokesperson noted that the city hired a company with over 20 years of experience in the ID business to advise on the design of their authentication and verification process. The city will also use a legal research firm to verify the identity and residency of applicants.

Advocates for municipal IDs also argue that there has been no evidence of fraud being committed through the existing programs. Inclusiv’s DeFilippi said New York credit unions haven’t seen any increase in fraudulent activity since they started accepting the card.

The $25 million-asset Brooklyn Cooperative, which accepts New York City’s municipal ID for account openings, guards against potential fraud by requiring two forms of picture ID, said Rebecca Pear, director of member services. The IDNYC card serves as a secondary form of ID for members who can’t get a passport or driver’s license because of their immigration status.

“These IDs will have a number of security features including those that will be visible with the naked eye such as holofoil of the city seal,” the spokesperson for the city of Philadelphia said. “It will also have other features that can only be confirmed upon further inspection such as UV text and images. We believe it will be very difficult for anyone to make fraudulent IDs.”

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