Bank to Open Accounts for Welfare Recipients

Beginning next month, welfare recipient Michelle Henderson will have her own savings account through a program developed by Washington Mutual Bank.

It would be even better, she said, if she could have her benefit check deposited into her account electronically.

But here she and the bank bump into a brick wall: She will have to pick up her welfare check at a check cashing establishment, where welfare checks are distributed.

Los Angeles County officials have been promising for years to establish an electronic transfer system for aid recipients. They now say they are stymied by technical problems and are unsure when the system might be available.

A fallback plan to manually deliver welfare checks to Washington Mutual is also on hold, leaving people like Henderson in the lurch. She must do like thousands of others each month: trudge to a check cashing outlet, wait in line to pick up her check and hope no one follows her home.

“I don’t see how they expect people to move from welfare to work under these conditions,” said Henderson, who juggles school and a part-time job. “The whole plan seems underconceived. Because of my financial situation, I feel trapped in this cash-and-carry lifestyle.”

The 27-year-old mother of two is happy to become part of a unique pilot program developed by an advocacy group and the bank that will offer free savings accounts for 1,000 Los Angeles County aid recipients who would otherwise have to do their banking at a check cashing outlet.

Besides the free account that requires only a 1-cent minimum balance, Henderson will receive five free money orders each month. She can use the money orders to pay bills, rather than cash.

This, she said, will permit her to begin to escape from the cash-and-carry lifestyle she has endured.

Reliance on Check Cashing Outlets

Critics say the county’s system of distributing welfare checks has placed recipients in an unfair situation. Few have the credit history and qualifications to open regular checking accounts, leaving them with little access to financial services like loans that other citizens take for granted.

In the mostly poor communities where recipients live, there are few supermarkets or large retailers equipped to set up accounts or provide credit. Their financial solutions of necessity are the dozens of check cashing centers with which the county has contracted to issue benefit checks and food stamps.

Virtually all charge a fee--as much as 3% of the face value to cash a check. The county is handing the check cashing outlets a profit at the expense of poor families, critics charge.

“The bank should get credit for caring more about this population than the county does,” said Tessa Carmen De Roy, a spokeswoman for the group Strategic Action for a Just Economy, which brokered the bank deal.

The group is planning a rally next week to launch the Washington Mutual pilot project and express its frustration at the county’s lack of action.

For Washington Mutual, a Seattle-based corporation that recently moved into the California market, the project offered a good way to introduce itself to the community and help bring low-income residents to its branches, said spokesman Adrian Rodriguez.

“We’re hoping these relationships develop into long-term and that as they move up the financial ladder they will remain with Washington Mutual,” he said.

The project will start in two branches--Boyle Heights and Manchester--and the bank is helping the group develop a course in financial education by creating a basics of banking booklet. The group expects to enroll all 1,000 participants over the course of a year.

In 1997, Los Angeles County became the first in the state to cease mailing benefit checks to CalWorks recipients, in response to the concerns of postal authorities trying to stem a growing practice of mail thefts at the first of the month. Most families now must collect their benefits at about 100 check cashing outlets and are assigned to pick them up on one of the first 10 days of the month.

Electronic Transfers Beset by Problems

Although county officials have said they are in philosophical agreement with the idea of electronic transfer, De Roy said she believes there is a powerful disincentive: Since hundreds of millions of dollars in checks are distributed over a 10-day period each month, the county earns a large amount of interest or “float,” she contends.

The county now distributes more than $100 million in cash benefits each month to 200,000 families. Officials said the interest earned on the money was not immediately available.

Vance Martin, division chief of CalWorks at the county Department of Public Social Services, said interest earnings are not an issue.

“The idea that by some machination we would try to keep making a profit is wrong,” he said.

Martin said the county had expected to be able to offer electronic transfer of benefits and direct deposit but were waylaid by technical problems, primarily a multimillion-dollar upgrade of the county’s current computer system.

Martin also said the two sides are close to reaching an agreement to have the department physically transfer benefit checks to Washington Mutual to be deposited into the accounts of the project’s 1,000 participants. Those recipients should be able to access their cash on the first of the month, he said.

That arrangement will greatly improve Michelle Henderson’s relationship with her landlord. She now is assigned to pick up her $611 monthly check on the 10th of each month. Sometimes, her check is not there. Then she must try to reach a caseworker to cut through the red tape.

“It can cause a real hardship,” said Henderson, who is studying community planning at Los Angeles Trade Technical College.