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Banks seen missing opportunity to make money

Nearly four in 10 Western New York households are considered low- or moderate-income, but less than one-fourth of the area's bank branches are located in such communities, according to a study of branch locations by an advocacy group.

The report by the National Community Reinvestment Coalition (NCRC), which looked primarily at the 25 largest U.S. cities, found that banks are more likely to be located in wealthy, white neighborhoods than they are in low-income, working class or minority neighborhoods. A few cities had more equal distribution of branches, the study said, but most showed "a stark disparity."

The report's conclusions are not wholly surprising, since banks are for-profit businesses that naturally go where the money is. Banks argue they can't be charities, and branches need a certain volume of deposits and business just to break even.

But the advocacy group argues the banks are missing opportunities to make money. It said banks should consider such neighborhoods as "an untapped market area ripe for expansion," noting they are often much denser than affluent areas, with a higher concentration of income per square mile.

That means the overall income could be higher in a poorer ZIP code, even though the median income there is lower.

"For a lot of lenders, they just miss the opportunity," said John Taylor, president of the group that did the study. "Because every time a community leader or politician works to get a branch open in a neighborhood, it becomes a profitable branch."

The group did not accuse the banks of actually "redlining" the communities -- which would be illegal. But it said the lack of branches hinders families from building assets and climbing out of poverty, and urged banks to do more to help communities and consumers. About 22 million U.S. households, or nearly 21 percent, are "unbanked" -- having no ties to a bank or credit union -- and an unknown number of others are "underbanked," the group said. As a result, they are less likely to have savings and find it hard to establish a credit history.

NCRC said the lack of adequate branches means the population in underserved communities is forced to rely instead on so-called "fringe" financial services providers, such as check-cashers, pawn shops, rent-to-own stores and storefront lenders, who charge higher rates and fees than banks.

"As mainstream financial institutions leave, a hybrid, more expensive system for basic banking services and products takes its place," Taylor said. "So people are limited to predatory services and products."

A spokesman for M&T Bank Corp., the region's largest locally-based bank, said the bank has 17 branches in city limits, including in lower-income areas on the East Side, and noted the major investment last year in purchasing nine more local branches from Citigroup.

"We pride ourselves in being the market leader in our city, and we do that by serving every city neighborhood," said spokesman Chet Bridger.

The study by the Washington-based umbrella group of 600 community activists reinforces the conclusions reported by The Buffalo News in its 2006 series The High Cost of Being Poor. The series examined the extra costs that low-income people and people in poor areas end up paying for basic services and found a shortage of branches overall on Buffalo's East Side.

Buffalo was not included in NCRC's core study, but the group examined Western New York at the newspaper's request. About 41.8 percent of the households in Erie and Niagara counties earn 80 percent or less of the region's median annual household income of $42,315. Yet, the group found that 69 of the 289 branches in the two counties, or 23.9 percent, are in low- or moderate-income census tracts. That percentage gap of nearly 18 points would rank the Buffalo area near the bottom of the 25 largest cities -- the bottom being those cities with fewer branches in poor neighborhoods -- just ahead of New York and Houston.

The report also looked at branch locations in mostly minority areas. Locally, the group found that just 28 of the 289 branches -- 9.7 percent -- were in census tracts whose populations are at least 50 percent nonwhite. But 16.7 percent of the population is minority, according to the Census Bureau.

Still, that 8-point disparity is better than in 17 of the top 25 cities, according to NCRC.

The group also challenged banks to do a better job of developing products and services tailored to the needs of these communities. The report argued that the demand is there, but banks may not be adequately meeting it even when branches are present, since people still turn to the higher-cost alternative providers.

NCRC urged banks to offer more basic services like simple and free checking and savings accounts, credit cards and small consumer loans. It also cited programs to help consumers re-establish credit, financial education, free income tax preparation, wealth-building products like Individual Development Accounts, and low-cost check-cashing services.

"There's more people who obviously are willing to pay a premium for basic banking services, because they use payday lenders, pawn shops and check-cashers and they take out more expensive subprime mortgages," Taylor said.

The group reserved special praise for Cleveland-based KeyCorp, the only bank cited by name in the report. The bank's "KeyBank Plus" program in Cleveland offers check-cashing at a much smaller cost than regular check-cashers in that city, and has been successful in serving several thousand customers, while still being profitable.

Taylor also cited Key's efforts to open branches in low-income neighborhoods to help revitalize and stabilize the city.

Finally, the group criticized regulators for not making sure banks are properly serving the needs of the community, in compliance with the federal Community Reinvestment Act.

As part of the CRA "service" test, regulators are supposed to look at the location of a bank's branches and its record of opening and closing offices. The test also looks at how well a bank caters to the needs of low-income consumers.

"It raises the question of widespread regulatory failure," Taylor said. "This is obviously one of the tests that's never given, because there's been a steady decline in branches in low-income neighborhoods and a steady increase in upper-income neighborhoods, without any objections from regulators."


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