South L.A. Patrons Pay a Hefty Price as Banks Leave : Consumers: Pawnshops, check-cashing firms and finance companies have moved in to fill the void.
Shortly after Wells Fargo Bank closed a branch office last year on West 43rd Place, joining the exodus of financial institutions out of South Los Angeles, a pawnshop moved onto the site and began doing a brisk business lending money to customers at annual interest rates of 42% and higher.
The firm, 43rd Place Collateral Lenders, which sports a sophisticated computer system and a large, modern showroom, now makes an average of 70 loans a day. Most are for small amounts, typically $100 or so, but owner B.K. Botach says his portfolio also includes $2,000 to an overextended homeowner, $1,500 to an elderly woman who pawned a bracelet to pay medical bills and several thousand dollars to a cash-strapped men’s clothing store owner.
“You go to a bank, you fill out this much paperwork,” said Botach, clutching a fistful of documents, “and then you wait and wait. With me, you bring anything of value and you can be out of here in five minutes. . . . Banks are closing up all around here. It’s like they don’t see any future in this community.”
As banks and thrifts have closed their doors in South Los Angeles, pawnshops, finance companies and check-cashing firms have sprung up to fill the void, with many doing a land-office business. But the toll on area customers, who already pay high prices for basic goods and services because of a scarcity of retail outlets, is steep. Exorbitant interest costs are common on loans and there are hefty fees to cash what are often paltry payroll, pension or welfare checks.
The problems have surfaced as unscrupulous lending activities are on the rise, according to police and public-interest lawyers. Police do not keep statistics on arrests for loan-sharking or other illegal lending activities but the district attorney’s office and the Homeowners Outreach Center say complaints about equity swindles and fraudulent foreclosures in South Los Angeles have increased dramatically in the last decade.
In this high-tech age of automated teller machines and computerized banking, much of South Los Angeles remains a world apart from the traditional wheels of commerce. Residents stand in lines for hours to make a deposit or cash a check. Even those who live near a bank often cannot use it anyway. That is because most institutions require two forms of ID--usually a driver’s license and a credit card--to cash checks and many residents cannot afford a credit card.
Banks and thrifts are so scarce in some areas that on paydays armored trucks rumble to job sites, cashing checks for scores of garment, construction and other workers who have no bank account.
In an area where businesses of all kinds have been fleeing for years, the flight of banks and thrifts stands out. In the most depressed part of the district--a 40-square-mile area bounded by the Santa Monica Freeway, Van Ness Avenue, and 120th and Alameda streets--only 20 banks and thrifts now serve 257,469 people, according to a recent Los Angeles City Council study. By contrast, nearby Gardena has 21 institutions serving 49,847 residents and Los Angeles County as a whole has 2,263 banks and savings and loans.
The situation is expected to worsen with the proposed merger of Bank of America and Security Pacific--both of which have a significant presence in South Los Angeles. And residents such as Gwen Cannon, who lives near East Vernon Avenue and Compton Boulevard, aren’t looking forward to that prospect.
The 67-year-old disabled retiree said the nearest branch of Security Pacific is a 15-minute bus ride from her home. As a result, she visits the bank only once a month to make deposits to her savings account. To pay her rent, utilities and other bills she pays $7 at a nearby market to cash her $635 monthly disability check and then spends another $3 or $4 on money orders because she has no checking account.
“It’s pretty hard for me to get to the bank; if they close that branch I don’t know what I’m going to do,” Cannon said.
“Banks have a long and undistinguished history of not serving the inner city,” said Tom Schlisinger, director of the Southern Finance Project, a Charlotte, N.C., public-interest group. And now, smarting from losses on loans to developing nations and commercial builders, they have “intensified branch closings in inner cities, forcing many poor people to contend with the worst kind of loan-sharking and outrageous check-cashing fees.”
The departure of banks and thrifts has prompted lawmakers to largely focus on the problem of redlining, or the alleged refusal of financial institutions to extend credit to minority or low-income neighborhoods. Earlier this month, Mayor Tom Bradley said he will seek a city ordinance that would require banks and thrifts to disclose their lending practices.
But an equally troublesome consequence of the departure of financial institutions has been the disappearance of basic financial services and the depressing effect on real estate values and day-to-day commerce.
When a bank or thrift closes, residents not only are forced to go farther to cash checks or secure a loan, but they lose an important symbol of economic vitality that provides jobs and gives support to commercial real estate values. In South Los Angeles, one former bank branch now houses a legal aid office; another, a Salvation Army store. Several banks have become swap meet outlets and one former Bank of America branch on Crenshaw Boulevard has become an Urban League training center.
Thrifts and banks, of course, have closed branches throughout their service areas--not just in inner-city communities. First Interstate Bank of California, which has 333 offices, said five of its nine branch closings since 1988 have been in such middle-class areas as Walnut Creek and Monterey.
But because South-Central had so few branches to begin with, the effect of closings there has been devastating. Yet banking executives say they can afford to operate branches only where there is sufficient demand for financial services.
“The economics of modern-day banking do not allow for having a branch on every corner,” said John Popovich, a spokesman for First Interstate. “Today, there is a direct relationship between a bank’s deposits, loans and income. In other words, if there isn’t enough business to support the branch, we close it. We take no pleasure in that.”
Still, many critics say banks and thrifts have not made efforts to market their services to minority and inner-city residents. They point out that check-cashing firms and independent finance companies that charge rates far higher than banks and thrifts seem to thrive in the very same areas that banks and thrifts say there is no demand.
The discontent and frustration with banks and thrifts is so widespread that more than 1,200 businesses and residents have pledged $2 million to start a credit union next spring to better serve South-Central Los Angeles’ financial needs.
Banks and thrifts “take money from the community but they won’t put any back in,” said Clyde Johnson, who is organizing chairman of the South Central Los Angeles Community Development Federal Credit Union. “People here have to rely on” independent finance companies, pawnshops and other lenders who offer extremely high interest rates, Johnson said.
“We feel we are serving those communities,” Irv Margol, executive vice president of Security Pacific, said. He added that although customers in the area are treated no differently than others, “the people in the community may see it a little bit differently than we see it.”
But if rapid growth is any indication, the companies that appear to be enjoying the most success meeting demand for some financial services in South Los Angeles are the 133 check-cashing firms, such as those operated by Santa Ana-based Continental Currency Inc.
Continental Currency, which operates eight offices as well as the “Mobile Money” check-cashing trucks, took in an estimated $18.5 million in check-cashing fees in 1990--a 200% increase over 1986, according to industry sources.
Continental President Fred Kunick would not comment on the sales figure. But he acknowledged that “you can make a very good profit” in the check-cashing business. The company’s South-Central Los Angeles offices serve more than 40,000 customers a month, he said.
Although Continental and other large operators--such as Nix Check Cashing--maintain modern facilities that are open seven days a week, utilizing them can be expensive.
Most check-cashing outlets charge 1.5% to 6% of the face value of the check to cash it. Once they receive the money, many customers buy money orders--at 25 cents to $1 apiece--to pay their bills. As a result, check-cashing patrons can pay more than three times the fee for low-cost checking accounts offered by some banks, the Los Angeles City Council study found.
What is more, some consumers find it difficult to make price comparisons because a few check-cashing outlets do not comply with a state law that requires them to “post a complete, detailed and unambiguous schedule of all fees” for cashing checks.
Herb Andrews, owner of A.B.C. Loan Co. on South Central Avenue, does not post fees because charges “depend on how much risk I have to take to cash a check,” he said. “Sometimes I might charge as much as 10%” for an out-of-state or other risky check.
Patrons say the convenience of check cashing outweighs their concern about cost.
“I come here because it’s convenient; they don’t hassle me for a lot of ID” said a Los Angeles public housing employee named Ray who went to the A.B.C. Loan Co. to cash his payroll check. “I believe in black business. I’m recycling black dollars.”
For the most part, however, the rise of check-cashing firms has done little to benefit local residents because they do not extend credit, finance housing or fund businesses.
Georgetta Banks, a Los Angeles playwright and real estate investor found herself engulfed in the inner-city’s financial nether world after she gutted a four-bedroom South-Central home in the mid-1980s and invested $16,000 to install new plumbing, wiring and windows. She spent two years trying to refinance the property--contacting more than half a dozen lenders.
But she said that those who were interested only offered her loans with interest rates over 14% or balked at giving her 80% of what she felt the renovated house was worth. She finally got a loan from Home Savings of America last year. But she said that the thrift appraised the renovated home at about $120,000--the same value as some dilapidated neighboring houses that “haven’t had a home improvement in 25 or 30 years.”
Another disgruntled consumer, Alma Jean Campbell, said she closed her savings account at the South-Central branch of Home Savings of America two years ago and began cashing her Social Security check at a grocery store because it became too inconvenient to go to the thrift.
“You have to stand in line all day to cash a check because they only got one or two tellers working,” Campbell said. “But if you go to a neighborhood like Beverly Hills or Mid-Wilshire, there are no lines because every teller window is open. It makes you feel like they don’t care about this community.” (A spokeswoman for Home Savings speculated that the branch may have had long lines because demand for check cashing can be heavy on days when government assistance checks are issued.)
Many critics are not surprised that banks and thrifts seem to have lost touch with their customers in South Los Angeles.
Jose Lozano, publisher of La Opinion, said banks and thrifts are starting to recognize the Latino market and have increased their advertising in his paper. Nevertheless, he said, they still “tend to look in obvious neighborhoods, like East L.A., for business. South-Central is still a mystery to them. They don’t understand that nearly half of its residents are Hispanic.”
