North Coast residents still struggle with banking access

For more than 20 years in the Sonoma Valley, a crucial place for banking for Latino residents has not been a bank at all.

Instead, it's a small market owned by a man who is known in the community simply as “Polo.”

While there are more than a dozen financial institutions nearby, the La Morenita Market along Highway 12 provides familiarity, efficiency and comfort in an area home to an estimated 12,000 Latinos. There, they can cash their checks, send remittances to Mexico and other countries as well as pay their PG&E and AT&T bills.

“I really can't say why people come here and not to some other place. I've even asked myself why so many people come to us. I don't get it. We sometimes have long lines with people waiting to cash their checks or to send money to their families,” said Alfonso González, more commonly known by his nickname “Polo.”

“Besides, people always talk bad about banks,” said González, who started the market 23 years ago and added banking in 1995.

While helpful, González's services greatly underscore the needs of people who are not being served by traditional banks. That hinders their financial security as well as their opportunity to get a toehold into the middle class.

Nationally, 7 percent of U.S. households - about 9 million - were listed as “unbanked,” meaning no family member had a checking or savings account, according to the Federal Deposit Insurance Corp. An additional 20 percent were listed as “underbanked,” which means they had an account at a traditional financial institution but also used services from an alternative provider such as a payday loan provider or a check casher.

The problem is that those alternative providers are under less regulatory scrutiny than traditional banks and historically have been a major source of predatory lending practices.

Jose Alvarez, manager of Redwood Credit Union's branch in Sonoma, said he has encountered customers who were victims of unscrupulous practices from less regulated lenders, such as people who were charged from 17 to 25 percent interest rates on auto loans from a dealership.

“I think many of the people who are unbanked are simply unaware of their options,” Alvarez said.

“Even if it isn't predatory, it's just more expensive,” said David Newville, director of government affairs for the Corporation for Enterprise Development, a nonprofit advocacy group for expanding economic opportunity for the disadvantaged. It receives funding from banks such as Citi.

Newville noted that a banking account is essential to building a credit score. One out of 10 adults have no credit history with a nationwide consumer reporting agency, leaving about 26 million people who are “credit invisible,” according to a study last year by the Consumer Financial Protection Bureau. That agency has taken steps to help rein in alternative providers of banking services.

“You need a credit score to rent an apartment, to get a job,” Newville said.

Local numbers

In Sonoma County, the numbers are better than the national average. Only 5.7 percent of county households were unbanked and 17 percent underbanked, according to Newville's group. Mendocino County was at 8.4 percent and 17 percent respectively, while Lake County was at 8.7 percent and 17.4 percent.

But problems still persist. It can be seen at the La Luz Center in Sonoma, which provides health, education and financial literacy programs for the Latino residents of Sonoma Valley.

About 80 percent of the families that sign up for Medi-Cal and/or CalFresh, which provide health care and food stamps to low-income people, do not have a checking or savings account, said Angie Sanchez, a La Luz family resources coordinator who helps applicants fill out their paperwork.

“If they do, they say ‘it is only to cash my checks,'” said Sanchez, who added that the typical account would have less than $100.

People who are reluctant to sign up for checking or savings accounts have various reasons, analysts and community activists said. Some are undocumented and are nervous about being deported. Others have cultural issues, such as those who grew up in rural areas who didn't have access to traditional banks and are suspicious of them. Some are older people who are embarrassed to admit that they are one of the unbanked.

“The undocumented person will want to stay away,” said Juan Hernandez, executive director for the La Luz Center. “That's what you talk about with living in the shadows.”

Financial literacy

The La Luz Center is working to improve financial education and literacy among its client base of 6,000. “We try to move people from crisis to prevention, and financial literacy is on that continuum,” Hernandez said. “It's the best way to transform the community.”

But it needs help from the banking industry. Both Sanchez and Hernandez said that having a Spanish-speaking Latino branch manager who is active in the community makes all the difference. In the past, it has been Paco Villasenor of Westamerica Bank, but recently it has been Alvarez, a Mexican-born Sonoma Valley High graduate.

Reaching out

“He really pulls in a lot of the Latinos who aren't banking,” Sanchez said. “When I do outreach events, they (Redwood Credit Union) are the one bank I see doing outreach.” She noted that she doesn't see large banks such as Wells Fargo, Bank of America or Chase at such events.

As a credit union, Redwood is a nonprofit cooperative whose mission statement is to “passionately serve the best interests of our members, employees, and communities.” Alvarez, a former Wells Fargo employee, said his focus on customers rather than profits makes his interactions and workshops a much easier sell in the community. His goal is not necessarily to convert them to Redwood members, but “really educate about their alternatives,” he said

Helping undocumented

“They don't know the options. They have been doing it same way for years,” Alvarez said.

It helps that Redwood as well as Mendo Lake Credit Union both accept undocumented applicants who do not have Social Security numbers. Instead, both accept applicants with an Individual Taxpayer Identification Number as well as another form of identification, such as a foreign passport or a consular-issued ID. Dispelling the myth that applicants need a Social Security card is a major hurdle, bankers said.

“I get frustrated because there are people who are getting taken advantage of,” said Brett Martinez, Redwood's president and chief executive officer.

The pitch worked for Jorge Guillermo, 50, who works for a restaurant in Sonoma. In the past, Guillermo had been unbanked as he traveled while working aboard cruise ships. He now banks at Redwood Credit Union and sends money to Mexico through the Xoom website and app, which is member of the PayPal family.

“In Mexico, I was in a cooperative. Traditional banks charge you more and you are a client,” Guillermo said. “In a cooperative, you are more of a partner.”

Rural issues

In more rural areas such as Lake County, the issue is even more problematic given the overall lack of financial institutions because of the small population base. That was evident in 2011 when Mendo Lake Credit Union decided to open up its Clearlake branch.

The decision was a risky move given the economy was still feeling the effects of the recession, which hit the banking sector especially hard, said Richard Cooper, chief executive officer of the Ukiah-based credit union.

There were only about three bank branches in the town of 15,000 on the eastern edge of Clear Lake. One of those was Wells Fargo, Cooper said.

“We really felt that service was lacking from traditional institutions,” Cooper said.

Today, the credit union's Clearlake branch has 4,000 members and $20.5 million in deposits. More than 25 percent of the new customers were likely unbanked, Cooper said. They include “second chance” customers with poor credit scores and other financial problems, who were able to establish a checking account for a $10 monthly fee, which allows them use of an ATM card.

“We're always looking to try to reach out to those folks,” Cooper said.

Upper Lake still has no bank branches after Westamerica Bank closed its walk-in location last year, serving an area of 7,000 people. While customers can do much banking today via digital devices, many elderly are not online, and others need personal service, from discussing loan options to retrieving quarters for laundry.

The smaller population in Upper Lake cannot financially justify a branch, Cooper said, but Mendo Lake does have an ATM machine there.

Grading banks

As opposed to credit unions, banks operate under a federal law known as the Community Reinvestment Act, or CRA, where they receive a grade from regulators on how well they serve low- and moderate-income neighborhoods in three categories: lending, investments and services.

According to federal databases, local banks such as Exchange Bank, Westamerica, Luther Burbank Savings and Bank of Marin all earned “satisfactory” ratings in their last CRA exams. Luther Burbank received a “need to improve” grade in its 2010 report. Two years later, it settled with the Justice Department over claims it discriminated against African-American and Latino borrowers with a jumbo loan program that targeted wealthy individuals. As part of the settlement, it created a new division to increase conventional lending in minority areas.

The often-derided big banks, however, typically receive “outstanding” grades. Their recent efforts to reach the unbanked are focused on cards, especially prepaid ones. For example, American Express has teamed with Wal-Mart for a card that allows for direct deposit, bill-paying, transfers and cash at the retailer's registers through its Bluebird account.

Locally, Exchange Bank has made efforts in the community with two separate $2 million allocations for affordable housing projects in Santa Rosa and Petaluma as well as housing financing for farmworkers and veterans. It also houses a La Luz $50,000 account meant to help spur business lending.

Analysts note the CRA is more weighted toward such lending for an overall grade as opposed to the service category. But efforts to revamp the legislation are nonexistent in a deadlocked Congress.

“The CRA was written in the '70s. The world has changed a lot since,” Newville said. “The service test doesn't play as large of a role as it should.”

Exchange Bank, however, received an “outstanding” grade for service in its 2014 CRA report. FDIC regulators noted its expansive outreach with 19 branches in Sonoma and Placer counties, with one located in a low-income area and six in moderate-income neighborhoods.

“This distribution of branches clearly shows that the bank's delivery systems are accessible to essentially all geographies and individuals of different income levels,” the regulators wrote.

Exchange Bank officers pointed out the bank has a branch in the Roseland area of Santa Rosa as well as Stony Point Road to better reach the area's growing Latino community. Those also are areas with a high concentration of alternative providers of financial services.

“We are held to a higher standard,” said Greg Jahn, executive vice president of Exchange Bank. “That is something our customers can feel confidence in.”

You can reach Staff Writer Bill Swindell at 521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.