U.S. Bank Branching Into Poor Neighborhoods

U.S. Bank’s arrival in a Boyle Heights strip mall this month marked a milestone for this under-banked city pocket, becoming what community leaders say is the first new branch to open in the neighborhood in about three decades.

Officials at the bank, which is expanding in California after a recent acquisition, say the region’s minority consumers--many of whom rely on costly check-cashing services--represent one of the most promising new markets around. A second branch is opening next month in Crenshaw, and the bank is scouting a third low-income location in Los Angeles.

But the path to U.S. Bank’s push into communities that have seen a steady exodus of bank branches in recent years did not come without pressure. Its commitment grew out of a campaign by the San Francisco-based California Reinvestment Committee, a nonprofit advocacy group, along with local community organizations.

The Los Angeles City Council also played a pivotal role, holding up lucrative business with U.S. Bank last year while the institution crafted an acceptable plan to serve the community. The tactic stemmed from the city’s linked banking ordinance, which ties decisions on city deposits and bond business to how banks are serving the city’s neighborhoods and residents--including the poor.

The ordinance has sat on the books since 1992, but the city did not begin enforcing it until 1999, right as U.S. Bank’s parent company, U.S. Bancorp, was acquiring Newport Beach-based Western Bancorp, parent of Santa Monica Bank and Southern California Bank. The timing of the acquisition--which initially left the combined entity with only one branch in a low-income neighborhood--turned U.S. Bank into the city’s first linked banking test subject.

The results, many say, have underscored how civic pressure can help nudge private enterprise toward solid business opportunities that might otherwise be overlooked, assisting long-neglected neighborhoods in the process.

“The timing was just perfect,” said Councilman Nick Pacheco, whose district includes Boyle Heights. “U.S. Bank happened to be before [the Housing and Redevelopment Committee] on a number of issues, so we were able to use some leverage.”

Pacheco, who called the opening of the neighborhood branch “huge,” has pledged to help raise awareness among constituents about it.

U.S. Bank officials concede that pressure got them to the table. Once there, however, they quickly realized the potential.

“It was obvious that there were new business opportunities that a Santa Monica Bank would not have had,” said U.S. Bank California President Dave Rainer. “We had capital to expand, and we saw obvious areas that were underserved.”

In an effort to comply with federal Community Reinvestment Act requirements--which are weakly enforced--the bank crafted a plan to serve lower-income communities in the wake of the acquisition. As part of the plan, it pledged to direct at least 12% of statewide deposits into community development loans and investments and agreed to open three new branches in low- and moderate-income parts of the city by the end of 2002.

The scheduled May 16 opening of the Crenshaw branch puts the bank “way ahead” of schedule, Rainer said.

“People always talk about how acquisitions are bad,” he said. “Well, if Santa Monica Bank hadn’t been acquired, these branches would never be here.”

The venture offers a rare glimpse at a branch building its business from scratch--nearly unheard of in an era of mega-mergers--in a neighborhood where many potential customers are wary of or unfamiliar with conventional banking.

Staff at the small branch on 1st Street have set up 40 accounts since opening April 6, with Estela Samson at the helm as manager. Samson’s father grew up around the corner, and she spent her youth working in the family liquor store nearby.

Her neighborhood roots give her an appreciation of the task ahead: She is planning summer seminars for residents on personal finance basics such as balancing checkbooks and even on how to write a check, she said.

“Here, even people who have a savings account may not know how a checking account works,” Samson said. “There’s more education that needs to be done.”

New clients have included some who rely on Nix Check Cashing, located in the neighboring Food4Less, and have never had an automated teller machine card or traditional loan, branch officials said. The branch also has lured nearby residents such as 38-year-old Luz Maria Cordero, who transferred her money last week from a Washington Mutual branch for convenience and cheaper checking.

“It’ll grow like crazy, but little by little,” she said of the new branch, “because people here really need it.”

The branch is the neighborhood’s first brand-new choice in decades, but it builds on a slowly improving selection of services targeting Boyle Heights’ Latino base. Last June, the Southern California Edison Federal Credit Union took over a faltering credit union nearby, offering low-cost money transfers to Mexico to draw in new customers.

In Crenshaw, many would-be customers of the soon-to-open branch use check-cashing services or suffer from impaired credit, said Crenshaw branch manager Eric P. Lee. To that end, Lee is working closely with community-based economic development organizations that can help educate potential customers and even provide micro-loans to those who fall below the radar of U.S. Bank lending programs.

U.S. Bank’s newfound commitment to low-income neighborhoods, however, did not come without civic pressure.

“The bank, as a result of conversations with the community, has made a very important statement in opening up access,” said Alan Fisher, executive director of the California Reinvestment Committee, which pushes lenders to make and meet their CRA commitments.

Community organizations often fight big bank acquisitions in an effort to demand greater services for overlooked consumers. Minneapolis-based U.S. Bancorp is engaged in another such battle now: It merged last month with Milwaukee-based Firstar Corp., and Midwest community activists have assailed both entities’ records on minority lending, although the companies have vigorously denied the charges.

Here in Los Angeles, however, community pressures coincided with the resurrection of the linked banking ordinance. In addition to banks where city departments have deposited money, the ordinance also targets banks that act as trustees on billions of dollars in city bond business. U.S. Bank is a major player in the field nationwide. City and bank officials last week could not immediately estimate the extent of U.S. Bank’s current business with the city, although they characterized it as significant.

Some of that business came before the city just as the ordinance was stirring to life and U.S. Bank was crafting its community development plan for its merged entity.

By April of last year, the bank had completed a community reinvestment plan that satisfied critics, and the hold was released, said Pacheco’s senior deputy, James Santamaria.

“They did come around the corner and see the light, and that’s to their credit,” he said. “Also, a lot of the other banks took notice to what could possibly be in store for them.”

And that could come soon. The linked banking community oversight board created by the city recently crafted questionnaires to measure financial institutions’ community performance, and the city treasurer’s office last month mailed the forms to about 80 banks, said city Treasurer Joya DeFoor, who took office in December.

The 12-page document asks banks everything from which languages are spoken in branches and offered on ATM machines to whether the institutions lend to community-based organizations or offer low- or no-cost checking. The first responses are expected in May, when the oversight committee will score and rank them, DeFoor said.