The Committee on Commerce and Economic Development heard testimony Monday, Oct. 21, 2019, regarding possibly reducing the unbanked population in the city through the establishment of a public bank.
William Hall, the director of financial inclusion in the Office of Financial Empowerment and Opportunity, testified that nationally, 6.5% of all households are unbanked. Another 18.7% are underbanked, meaning they have access to a bank account but are still using predatory products such check-cashing establishments.
“According to Prosperity Now, 12.5% of households in Philadelphia are unbanked, which is almost twice the national average,” Hall said.
Kevin Thomas, associate director of operations and asset building at the Building Wealth & Health Network at Drexel University, offered several suggestions for how to include the unbanked in the financial sector, including holding the banking industry accountable.
“It has been their [the banking industry] policies that caused this unbanked and underbanked problem,” Thomas said. “Our goal shouldn’t be to get more people banked. It should be to give people access to safe and meaningful financial products and support.”
Thomas said establishing a public bank is an important step to alleviating the unbanked problem. A public bank is a banking institution that reports to governmental authorities rather than shareholders.
“Are you not tired of hearing how Philadelphia is the poorest big city in the United States,” Thomas asked. “Take action now, and start creating the infrastructure and the industry for people to manage their money and build wealth.”
The Bank of North Dakota is an example of public banking. The bank was founded in 1919 to help North Dakota farmers weather a storm of rising interest rates and suppressed grain prices. Today, the Bank of North Dakota makes mortgage, student, business, and agriculture loans at a lower interest rate than commercial banks, while also creating a profit that goes directly to the state treasury.
Hall cited a Brookings Institute study that found a full-time worker who has access to a checking account could potentially save as much as $40,000 over the course of their career by utilizing a low-cost checking account rather than check-cashing services.
Hall said reliance on such establishments can become a habit for those who do not have access to banks to simply avoid the inconvenient travel to a bank and would rather pay the fee (sometimes as much as $12) to get a check cashed.
“[If I lived] in Brewerytown and wanted to get a check cashed, “I’d have to hop the bus to go to the Wells Fargo on Fairmount and walk a mile, Hall said. “Or I could just go into the check-casher.”
To assist individuals in gaining financial inclusion, the City established Financial Empowerment Centers, or FECs, which provide free financial counseling to Philadelphia residents.
“[Since] 2013, FECs have served 13,410 unique clients across 28,861 sessions and have helped clients reduce their debt by $16.7 million and increase their savings by $2.7 million,” Hall said.
In that time, Hall said 1,870 clients have improved their credit scores by at least 35 points, and 570 previously unbanked clients have opened bank accounts. For every $1 invested in the FEC program, $6 of wealth has been generated.
However, due to funding reductions beginning in 2017, the FEC program has seen fewer clients. Participation has dropped from roughly 4,000 a year to about 1,100.
Hall said a large grant from the Bloomberg Foundation in 2016 helped fuel the initial success of the program, but that grant had long since expired.
After the meeting, Thomas said he would like to see a public bank that’s invested in the community.
“[I’m looking for] a bank that can offer financial education and can be more flexible when it comes to fees,” Thomas said. “It doesn’t necessarily have to see profit at every juncture because the overall structure is based on the City’s overall revenue.”
Thomas said the unbanked community doesn’t trust banks because of the belief that banks do not have the consumer’s best interest at heart.
“There needs to be work done,” Thomas said. “Work done internally in the system, and work that can be done on our side to reestablish that positive relationship.”
Lawrence McGlynn is a recent graduate of Temple University’s Klein College of Media and Communication where he earned a Master’s in Journalism. For the next several months he will be reporting out of City Hall on various council and committee meetings, the city’s budget, and how these impact the daily lives of Philadelphians.
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