Bank On North Carolina

The Bank On North Carolina program is a project of State Treasurer Janet Cowell and Banking Commissioner Joe Smith.  “Bank On North Carolina is a program designed to help families make better use of financial services to convert their wages into wealth.  With an initial focus on connecting qualified “unbanked” households – those without any relationship to a bank – to appropriate checking accounts, the program will help these consumers: (i) Lower their financial transaction costs, (ii) Put them on the path to building savings and assets, and (iii) Avoid theft and robbery.”

This is a particularly important subject to me, and very much related to Financial Literacy.  Let’s address (i) above – “Lower their financial transaction costs.”  Many individuals who do not have a banking relationship (and no where to put their money) typically cash their paychecks at Check Cashing and Payday Loan centers.  The problem with this is two-fold.  First, the transaction fees at Check Cashing and Payday Loan centers are very high.  Check cashers usually charge approx. 5% fee to cash your check.  5%!!  Payday loan fees range from $15 and $70 depending on the loan amount.  Just think about that for a second.  5% to cash your check.  So if you received a net paycheck of $500, that equates to a $25 fee – just to cash your check!  Most people (especially now) would give their left arm to receive 5% interest on their cash.  Secondly, if these individuals are simply cashing their paychecks and not putting any money away in a bank or investment account (and I am assuming these same people do not have 401(k)’s or retirement accounts) they are missing out on any wealth creation at all, by cashing their check, sticking it in their wallet (or under their mattress) and spending it all, until next paycheck rolls around – and repeat.

The Sacramento Beehive has some good alternatives to Check Cashing and Payday Loans HERE.

So…back to Bank On North Carolina.  The “Bank On” model apparently started in San Fancisco in 2006 and has proven successful.  According to the Bank On North Carolina Feasibility Study (“Study”), the San Fran program yielded tremendous results:

• 31,347 accounts opened
• 24,714 accounts still open after two years of work (80% retention)
• Average balance is $980
• 17 financial institutions with 194 branches involved
• 34 community partners offering education to 680 citizens

The NC program is going to be piloted in Durham and will later expand statewide.  According to the Study, “Durham is the best city for a pilot given its manageable size, unbanked population, and long-standing commitment to economic empowerment.”

Fun (Scary) Facts:

• There are an estimated 472,000 households in North Carolina that do not have any kind of bank account.
• The unbanked population falls into three segments:
  • Those who think they need a driver’s license or Social Security number to open an account
  • Those who have bad credit or have mismanaged accounts in the past and now appear on ChexSystems
  • Those who do not think they have enough money to open an account or do not trust banks
• Accross North Carolina, there are approximately 1,400 check cashers, which is the fourth highest per-capita in the United States.
• Unbanked North Carolinians spend upwards of 5% of its income to cash checks each year.
• Most check cashing locations are within one mile of a bank or credit union branch.

A key item that the Study brings up is “Given trust and misperception issues with banks, the Bank On North Carolina campaign must use techniques that are uncommon to banks and government.”

Page 22 of the Study states “Financial Literacy Education is a Key Component of Marketing Bank On” – Yes, I do agree with this.  The plan is to have banks and the Bank On Advisory Committee work with non-profits to host financial literacy training programs (I wonder if I could host a financial literacy training program, even though I am not a non-profit?).

Thank You to Derwin Dubose and the State Treasurer’s Office for tackling this very difficult issue, and most likely with no public funding to speak of.