I just read the very thorough report “Perdido en la Traduccion: The Opportunity in Financial Services for Latinos” by Greg Fairchild and Kulwant Rai (Darden University – Faculty). The report looks at the opportunity in the provision of financial services for the rapidly-growing Latino population in the US. It also provides recommendations.
These are some of the findings in the report that caught my attention:
Reasons Unbanked Latino Households Do Not Have a Bank Account
The Banking Model that Works (Excerpt)
Many financial services institutions are pioneering new business models and products to tap the underserved Latino market across the nation. The Latino Community Credit Union (LCCU), established in North Carolina in 2000, is a successful example of such a business model. In a decade of operation, LCCU has expanded to 10 branches and 53,000 members.
LCCU’s business model includes:
– Low fees for account ownership (requiring only $10 to open a savings account)
– Minimum identification requirements (accepting identification from any country, not just the U.S.)
– Offering most of the financial products desired by its clientele (savings accounts, checking accounts, money market accounts, several types of small consumer loans and credit builder loans, remittance services)
– It gives priority to clientele conducting business in Spanish (although most of the staff also speaks English) which helps their target customers feel welcome. Making its clientele comfortable might be the most important reason for LCCU’s success as both our statistical and qualitative analysis suggest that not feeling welcomed is an important deterrent for the unbanked population.
Additional Findings (Excerpt)
Banking the Unbanked Results in declines in robberies and appreciation in property. Homeowners may benefit through higher housing prices.
“Banking” the unbanked 39,000 Latino (Virginian) households would bring Virginia over $900 million into the financial system, easing credit and providing additional income for financial institutions.
What is Really Required to Open a Bank Account?
The Patriot Act requires banks to ask individuals for an ID number when opening an account. However, it doesn’t state that the number must be from American sources. effectively giving the financial institutions the freedom to decide whether they wish to accept foreign forms of identification or not.
Currently, financial institutions do not have clear guidelines from either state or federal regulators regarding policies to serve unauthorized immigrants with bank access. On the one hand, banks are prohibited from discriminating on the basis of race, religion, or national origin via fair lending laws. On the other, some legislative initiatives restrict the acceptance of alternate forms of identification by major financial institutions in an attempt to discourage illegal immigrants from staying and/or coming into the country. The identification protocol for financial institutions is regulated by the Customer Identification Program of the U.S. Patriot Act. Although it requires an identification number, the Act does not state that the number must be from American sources, effectively giving the financial institutions the freedom to decide whether they wish to accept foreign forms of identification or not.
Police departments in Texas began encouraging banks to accept Matricula Consular Cards as identification for opening bank accounts as long as a decade ago. The Latino Community Credit Union (LCCU) in North Carolina, as detailed earlier in this report, primarily serves low-income Latino individuals, accepts non-U.S. identification, has minimal deposit requirements, and conducts its business primarily in Spanish – and appears to be growing without taking impudent risks. Furthermore, some financial institutions accept the Individual Taxpayer Identification Number (ITIN) (a nine digit number issued by the Internal Revenue Service to foreign nationals who are required to file taxes, but cannot obtain a social security number), foreign passport numbers or Matricula Consular Cards as alternative forms of identification.
Link to the Full Report: http://www.darden.virginia.edu/web/uploadedFiles/Darden/Tayloe_Murphy_Center/Research/TM_report.pdf