Go to the next article or back to the Color of Money index or Power Reporting


The Color of Money

Day two, article three

Poor may be left behind by bank deregulation

Basic services lagging
as institutions court
the wealthier clients

By Bill Dedman, The Atlanta Journal-Constitution

Published May 2, 1988, Page A5

Copyright 1988, The Atlanta Journal-Constitution

Ma Bell isn't Ma Bell anymore. And the airlines aren't the same. Quietly, banks also are changing.

It's called deregulation.

Deregulation means banks are becoming larger and are more likely to be headquartered in another city. Deregulation means banks are changing their services to appeal more than ever to wealthier customers. Deregulation means banks are offering checking accounts with interest but also restricting access to basic services.

Neighborhood groups in Atlanta and around the country think these changes are bad news for consumers, particularly the poor.

It started in 1980, when Congress began to remove limits on the interest that banks could pay depositors.

To compensate for the higher interest rates they began to pay on NOW accounts and SuperNOW accounts and others, banks began to charge for services that had been free and to raise the cost of those that had been cheap. Minimum balances were set even on accounts that earned no interest, according to a 1987 report by the General Accounting Office (GAO).

Many low-income people don't have enough money in the bank to benefit from the higher interest rates, and they can no longer afford the fees and higher balances, according to the GAO report.

The GAO also said banks and savings and loans were charging higher fees for check printing, for stopping payment on a check and for returned checks.

People who can't afford a bank account still have bills to pay. And some businesses won't take cash. For example, the Atlanta Housing Authority, landlord for 15,000 low-income households, has required tenants to pay by check or money order since 1986.

The poor still have paychecks and government checks to cash, too. In 1977, 99 percent of banks cashed government checks for non-depositors, but only 56 percent did in 1985, the GAO reported.

A federal law, the Community Reinvestment Act, requires banks and savings and loans to help meet the deposit and credit needs of all segments of their communities.

Congress is expected to consider bills this summer to make the requirement more concrete. Banks and savings and loans would be required to offer low-cost "lifeline" checking accounts requiring no more than $25 for an initial deposit, having no minimum balance requirement, allowing eight free checks and five free withdrawals a month, limiting fees for bounced checks or stopped payments to $5 apiece.

In addition, banks would be required to cash, at no charge, Social Security, welfare and other government checks for non-depositors.

In the House, the bills will be considered by the Committee on Banking, Finance and Urban Affairs, of which Rep. Pat Swindall, a Republican from metro Atlanta's 4th District, is a member.

Most banks in the country offer some form of low-cost checking to senior citizens and some offer it to students, but only 15 percent offer the service to the general public, the GAO said. Many banks advertise checking accounts as low-cost, but these accounts often do not meet the government's definition of a lifeline.

For example, many Atlanta banks require a minimum balance, usually $400 or more, to avoid a higher service charge. Those without minimum balances limit the number of checks, usually to 15 a month, and some don't return canceled checks to the customer. The most economical account offered by a large bank in Atlanta is at Citizens and Southern Bank (C&S), where 75 cents buys seven checks a month but no automatic return of canceled checks.

Many low-income Atlantans have no checking account. Of residents with annual incomes below $15,000, the number without checking accounts may be 46 percent, according to a market study done last year for Trust Company Bank and a neighborhood coalition.

Use of all bank services was less among blacks. Sixty-eight percent of whites in low-income neighborhoods had a savings account, but only 52 percent of blacks. Forty-six percent of whites had an automatic teller card, but only 34 percent of blacks. Fifty-two percent of whites had a VISA or MasterCard, but only 25 percent of blacks.

The market study showed that 42 percent of Atlantans who had no checking or savings account cashed checks at a financial institution anyway; 21 percent went to a grocery store; 9 percent to a check-cashing service; 7 percent a liquor store; 3 percent a furniture store; and 2 percent their employer. The rest named other places, said they didn't know, or said they didn't cash checks.

Check-cashing services can be expensive -- from 1 percent to 10 percent of the value of the check, the GAO said. Atlanta services say they charge from 1 percent to 2 percent of payroll checks, more for other types of checks. Some won't cash personal checks.

"Poor people go to the check casher, the pawn shop, the grocer, to cash a check. These are their bankers," said Dennis Goldstein, a lawyer at Atlanta Legal Aid Society. "My dad took me down to the bank to open a savings account when I was a kid. It took 10 years for my balance to get over $100, and when I was a teenager I must have written three checks a month. But eventually I'm going to make the bank a profit. Banks don't seem to want that anymore."

The GAO study found that these changes in depositor services were most pronounced at large banks. Now there are more large banks than ever.

New laws allowing interstate bank mergers have made the local neighborhood bank a fond memory in many areas. All six of the so-called Southern superregional banks have Atlanta offices, but only two are headquartered here.

Bankers say interstate banking is more efficient and will bring better services and lower prices to consumers.

Neighborhood groups fear that out-of-state banks will pay less attention to local customer needs, will have fewer familiar faces or will shift local deposits away from the neighborhoods.

Financial officers said getting banks to rechannel a natural inclination to follow only the safest investments, with the highest possible return, is like asking a leopard to change its spots.

"Bankers traditionally have worked with the more affluent areas that have more income and more money," said Bob Thompson, executive vice president of Liberty Mortgage Corp., a subsidiary of Liberty Federal Savings and Loan. "That will never change."


Go to the next article or back to the Color of Money index or Power Reporting


Reprinted with permission from The Atlanta Journal and The Atlanta Constitution. Further reproduction, retransmission or distribution of these materials without the prior written consent of The Atlanta Journal and The Atlanta Constitution, and any copyright holder identified in the material's copyright notice, is prohibited.


Please send comments and story ideas to Bill Dedman, Bill@PowerReporting.com

Home page: Power Reporting