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Commentary: Can we Bank on Indianapolis?

September 15, 2008

Whoa.

Those figures, based on national averages from the Federal Deposit Insurance Corp., don't paint a pretty picture.

People without bank accounts tend to keep cash at home or in their pockets, which increases the likelihood of crime. They create a market in which predatory lenders can thrive. They fail to reach their full potential, and so do the cities where they live.

We have a problem. Now what can we do about it?

We could take a cue from our neighbors to the south. Evansville last month announced an initiative that is the first of its kind in Indiana. "Bank on Evansville" is a joint effort of the mayor's office, eight financial institutions and United Way of Southwestern Indiana.

In short, the program aims to get more people to open bank accounts.

The longer view is that these "unbanked" people will learn how to manage their money, stop paying high check-cashing fees, and begin to build a credit rating. Ultimately, they could buy a home, send their kids to college, and afford a decent retirement.

"You really can't begin to build assets until you start with a checking or savings account," said Patty Avery, who heads up Bank on Evansville.

She hopes to replicate the success of "Bank on San Francisco," which began two years ago. At that time, 15 percent of the city's population had no bank account.

Organizers' first step was lining up financial institutions. "We made the case that these can be really good customers for you," who were already being chased by Wal-Mart, H&R Block and others, said Leigh Phillips, Bank on San Francisco's program manager. Fifteen banks climbed on board.

Then Phillips looked at why people don't have bank accounts: distrust of financial institutions, a poor credit history, concerns about high fees, the lack of a government photo ID or Social Security number.

Bank on San Francisco worked with financial institutions to overcome those obstacles by overlooking past problems and offering lower fees, no minimum-balance requirements, and clear instruction about insufficientfund fees, with some initial leniency. Banks developed their own products within those parameters.

The city also passed a moratorium on new check-cashing outlets and payday lenders. People without bank accounts typically spend 5 percent of their income on check-cashing fees and money orders, Phillips said. That's $1,000 a year for someone making $20,000.

"If they invested that money for college or retirement, it could increase exponentially," she said.

The program's initial objective was to open 10,000 accounts (out of 50,000 unbanked households) in two years. The program surpassed that goal after one year, creating 11,000 accounts with an average balance of $800, and is on track to hit 20,000 by its second anniversary next month.

"Asset-building helps people move up the ladder and out of poverty, to start a small business, afford education," Phillips said. "Being outside of the mainstream doesn't help you get there."

Compared to people with bank accounts, the unbanked are younger, less educated, poorer, and more likely to be black, Hispanic or an immigrant.

Phillips has received inquiries about the program from 50 cities in 29 states. The National League of Cities was so impressed that in February it launched "Bank on Cities," a pilot program based on the San Francisco model that includes 10 cities.

Bank on Evansville, which is not part of the pilot, was spearheaded by hometown company Old National Bancorp. The bank is lending Avery, its director of employee communications, to the effort until next spring.

The program is expected to begin early next year. In the meantime, organizers are developing the accounts, planning an awareness and marketing campaign, figuring out how to track results, and working with social-service agencies to craft the all-important financial education piece.

"It's a lot more than getting people to come into a conference room and listen to you for an hour," Avery said. "It's about helping people figure out what they can change and helping them change it."

When people take charge of their financial future, they build stronger families and a stronger economy.

So what do you say, Indianapolis? If Evansville can do it, why can't we?



Parent is associate editor of IBJ. To comment on this column, send e-mail to tparent@ibj.com.
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