The Latino Community Credit Union offers financial literacy workshops for its customers. (Photo courtesy LCCU)

One NC bank offers Latino immigrants a safer way to save money

Sabino Fuentes-Sanchez hid $25,000 all around his house because he didn’t trust banks.  Lasonia Christon receives her Walmart salary on a pre-paid debit card. Kim James was homeless for most of the past decade in part because she had no place to save money.

There are plenty of reasons that U.S. adults still live the all-cash life, but the size of the group might surprise you. At a time when the majority of Americans use online banking, and some even deposit checks using their cell phone cameras, 8 percent of U.S. adults don’t have a checking or savings account, according to census data compiled by the FDIC.

The numbers are far bleaker among minorities — more than 1 in 5 blacks and Hispanics living in America don’t have a checking or a savings account, according to the FDIC.

Frozen in the cash-only past, they face myriad “kick-them-while-they-are-down” situations where getting money costs money. Banks typically charge $6 to cash checks, even when drawn on their own accounts. Opening a basic checking account to avoid that fee can cost $12 a month. Want to secure an apartment? Fee-based money orders are the only option. Without credit cards, they must turn to triple-digit interest rate payday loans for emergencies. Meanwhile, without any plastic, discounted shopping on the Internet is far out of reach.

While slightly more than half of the unbanked live in poverty, earning less than $15,000 annually, not everyone who’s outside the banking system has no savings.  Born in Mexico, Fuentes-Sanchez moved to the U.S. 20 years ago.  He made a fairly good living working for a tree removal company in Lumber Bridge, N.C.,  but when he tried to open an account, he was surprised by the cost.

“Instead of making money, I would have to pay fees,” he told NBCLatino.com’s Sandra Lilley. “(So) we used to keep money in the house. We were always trying to look for ways to hide the money in the house and keep it safe,” said Fuentes-Sanchez.

That’s a common refrain in Latino communities, and it has led to disaster. A rash of home burglaries led to the founding of Latino Community Credit Union (LCCU) in Durham, North Carolina in 2002.

Fuentes-Sanchez was still skeptical, however, until his wife got cancer. Her treatments devoured all their savings. When he was down to his last $500, and before she passed away, his wife convinced him to open a bank account at LCCU.

“She managed the money” and was disciplined enough to avoid spending it, said Fuentes-Sanchez, who is 37, and is now raising their five children alone. “Sometimes [I] see something and I am tempted to buy it…Now the money is in the bank.”

Saving — putting money out of temptation’s reach — is the foundational concept of consumer banking. But the importance of participating in the financial system has stretched far beyond the quaint notion of interest now. During the recession, America’s savings rate dipped negative anyway, meaning the entire country spends more than it earns, on average, and the notion of a savings accounts has almost disappeared.

“A bank account in a way has become like a passport or a driver’s license,” said Jennifer Tescher, CEO of the Center for Financial Services Innovation, who is generally regarded as the person responsible for popularizing the term ‘unbanked.’

The Latino Community Credit Union was founded with the unbanked in mind. Opened in 2002 after a rash of home burglaries in part to end the risky practice of storing cash at home, it caters to immigrants in the North Carolina area. Fees are low, interest rates on car loans are not dependent on credit scores, and most employees are native Spanish speakers.

“Most of our members have never had a bank account, either here or in their home countries,” said Erika Bell, Vice President of Strategy and Services for LCCU. “Many are from Central America and Mexico, in areas with a high percentage of unbanked.”  While 90 percent of its 55,000 members are Hispanic, it welcomes all, including refugees from Asia and Africa. Account holders, in total, come from 110 different countries.

“There’s a comfort level and trust people may never have had,” Bell said. “Most of the staff are immigrants themselves, and understand the newcomer feeling.”

There’s a widely-held perception that lending to recently unbanked consumers is risky, but Bell says LCCU has found just the opposite.

“Our portfolio has performed better than most of our peers,” she said. “People have come here to this country to establish themselves; if people have the right tools and responsible products, they do the right thing.”

Latino Community Credit Union is part of a growing set of financial companies called Community Development Financial Institutions, or CDFIs, a program supported by the U.S. Treasury Department that aims to help get the unbanked into the financial system. Mark Pinsky is CEO of the Opportunity Finance Network, which provides funding for these small community banks.

“Poor people are not stupid about money. They are smart. They have to figure out a way to make a dollar go very far. They are making really pragmatic decisions, in many cases. They don’t want to pay bank fees,” said Pinsky. ”But you make sure people are getting products and services they need. Banks may be [the] best place, they may not, but we don’t want to just leave them vulnerable to the predators out there.”

Most CDFI account holders are required to take personal finance training, which increases the likelihood that they used banking services responsibly, Pinsky said. In fact, many CDFIs outperformed traditional banks during the recession because of this extra training.

“They were prepared for the crisis in a way traditional lenders were not,” Pinsky said. For example, CDFIs never stopped imposing strict lending requirements that traditional banks returned to during the recession.

Both Tescher and Pinsky say that the problem of the unbanked is simultaneously getting better and worse. The penalty for being excluded from electronic banking continues to grow more severe as the cash-free set grows, no-cash retail outlets grow, and critical tools like low-balance text message alerts become more important. On the other hand, financial innovations hold out a lot of hope for underserved communities. Pre-paid debit cards, once prohibitively expensive, have come down in cost dramatically.  Meanwhile, the variety of alternative money systems that are evolving, such as cell phone payment methods, might provide a genuine alternative to unbanked Americans.

“At a time when the world has been through this recession, and the concept of the middle class has been altered, we can’t really afford to leave anybody behind,” Tescher said.

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