By EDVARD PETTERSSON
Staff Reporter
A mixture of distrust, ignorance and the absence of viable alternatives leads anywhere from 400,000 to 1 million Latinos in L.A. County to shun mainstream banks in favor of check-cashing and money-order businesses.
As a result, they often end up paying a premium for services that are available at little or no cost at mainstream banks.
“People look at what is available in their neighborhood,” said Laura Arce, director of community development with the National Council of La Raza. “In low-income neighborhoods, you will find few bank branches, but what you find is a large number of check-cashing businesses, and people end up using those.”
Many newly arrived Latino immigrants distrust mainstream banks because they require personal information that might fall into the hands of the Immigration and Naturalization Service.
Others are merely uneducated about the financial advantages offered by checking or savings accounts, said Jose Quinonez, vice president and manager of the Operation Hope Banking Center in Maywood, one of three financial education facilities run by the non-profit group.
The combination of those factors has resulted in the growth of banking alternatives in the Latino community. There are more than 1,000 licensed check-cashing outlets in L.A. County or about one-third of the total number of such operations in the state, according to the California Department of Justice, which regulates the industry. The majority of these businesses are located near their customer base in low- and middle-income communities.
On average, check-cashing businesses will charge 2 percent of the face value to cash a check, said Jim Ball, president of California Financial Service Providers, a trade organization. That amounts to $240 a year for someone who cashes paychecks totaling $1,000 a month.
For those with standard checking accounts at a bank, such a service is free of charge.
Many check-cashing outlets also offer money-order and money-wiring services, as well as payday loans to customers who run short between paychecks. However, those loans, which cost as much as $17 for each $100 provided, require customers to have a checking account, and as a result are not available to anyone who does business outside the banking system.
Latinos who patronize check-cashing businesses tend to use money orders, rather than checks, to pay monthly rent and utility bills. They also take advantage of wiring services to send money to relatives in Mexico and Central America.
In particular, the money-wiring business has been growing rapidly in recent years, with many check-cashing businesses working as agents for Western Union and other companies. An estimated $4 billion is wired annually to Mexico from the United States, mostly through Western Union, a division of First Data Corp. Company spokesman Pete Ziverts said First Data has a 30 percent to 40 percent share of the total money-wiring market in the United States.
To wire money, customers pay 5 percent of the amount being sent. For example, a $500 transaction will cost $25. By contrast, Bank of America charges customers a flat fee of $18 per international wire transaction, regardless of the amount sent.
The average fee for a money order at a check-cashing business is 49 cents, said Ball. Customers at mainstream banks would simply write a check and pay nothing, as long as they satisfy any minimum balance requirements that might be imposed.
To compete with those check-cashing firms, a number of financial institutions in Los Angeles have started to develop alternative programs designed to eventually bring the “un-banked” into the financial mainstream.
One of them is Broadway Federal Bank, a savings and loan association originally established to serve the African-American community that also is developing a growing Latino customer base. It will soon offer a “Bank Smart” program at its new branch at Martin Luther King Jr. Boulevard and Figueroa Street.
“We will be offering check-cashing and money-order services, but as people come in for these services, we will attract them to traditional banking services as well,” said Robert Marrujo, vice president and chief savings officer with Broadway Federal. “For example, we will charge a flat fee of $20 a month for an unlimited number of money orders, but we will place this money in a savings account for the customer.”
Likewise, Operation Hope Inc. has set up three banking centers in Baldwin Hills, Maywood and Willowbrook that provide check-cashing, money-order and wiring services at reduced fees. Again, the goal is to prepare customers to eventually qualify for mainstream banking services.
Quinonez believes that about 20 percent of the Latinos who are currently outside mainstream banking can make the transition, but it will require considerable effort to recruit them.
“We had one customer who came in here only to cash checks, because no one had ever taken the time to explain to him how much money he could save if he opened an account,” Quinonez said. “It took six weeks before we had convinced him to open an account, and this man was a U.S. citizen. You can imagine how much longer it will take to convince someone who is not a citizen.”
