"More, Please": New York's BDDs a Decade Later and What California Can Learn

Blog Post
May 7, 2010

 The banking development districts (BDDs) in New York State turned ten last year, and the Banking Department this week released the first-ever comprehensive report on the effectiveness of the program.

Created to reduce the number of unbanked and underbanked New Yorkers, the program is made up of 38 BDDs throughout New York City, Buffalo, and eight other counties. In the past five years, these branches have opened 61,750 bank accounts and made 6,673 mortgage, small business, and auto loans, extending nearly $540 million to underserved communities (the report states that this data was not collected prior to 2005).

 

Part of the original application requirements for the program stipulated that banks needed the support of local community based organizations (CBOs), and these groups were surveyed for this report as well.

 

Twenty-seven of the 38 bank branches, as well as 39 of the community groups, participated in the survey.

 

(Side note to those honing AB 2581, California's current BDD proposal: All participants should absolutely be required to report back to the state, so that the state can then accurately determine the effectiveness of the program.)

 

Overall, the report finds that the BDD program plays an important role in achieving the goal of reducing the unbanked population. The banks decide for themselves which low-cost products and services to provide, based upon their assessments of the community's needs and on their relationships with the CBOs. From the report:

  • 14 (56%) branches met directly with community stakeholders as the primary means of determining the community's needs
  • 71% of the branches found that the district needed affordable housing, community development initiatives, and CBO support. Other needs included banking products such as payday loan alternatives.
  • All bank respondents reported creating a least one new product or service to meet those needs.

Included in these new products and services are 'Second Chance' accounts (for people who lost an account in the past as a result of non-fraudulent mistakes such as overdrafts), Bank at Work programs, money wiring alternatives, checking accounts with enhanced features, and remote capture (rent payment) services. "One branch partnered with two organizations to construct the first affordable green rental property in Harlem in which 22 of the units are reserved for youth aging out of the foster system." These highlights represent the best of the program's progress, and certainly speak to its potential.

 

Ultimately, the New York State Department is limited in its review by the fact that banks were not required to respond to the survey, and those who chose to respond were self-reporting. And in some categories, the minority report participating - 22% provided loans to businesses, 30% conduct educational seminars for businesses, only two banks hired branch staff locally. None of the products or services listed in the previous paragraph were provided by a majority of the branches. However, a majority report "having developed ongoing relationships with at least two CBOs in their districts."

 

The report finds that the single change that would do most to improve the program would be mandating financial education. This would both "encourage the development of more affordable products and services" as well as "more collaboration between the BDD branches and local community groups."

 

Those community groups surveyed all responded that the mere presence of the branch spurred economic development, the branch "fills a void," and/or, the branch facilitates access to convenient banking services. But they also reiterated the need for financial education, general guidance, and more low/no cost banking products.

 

The report's survey findings regarding the inclusion of credit unions in the BDD program echoes oft-heard arguments. While credit unions, CBOs, and public officials favor their inclusion, banks contend this would be unfair, since credit unions are tax-exempt.  In New York, including credit unions would require amending state law. The report states:

 

"Supporters for the inclusion of credit unions in the BDD program noted that credit union were not exempt from most property taxes and argued that because a main purpose of many credit unions is to provide affordable products and services to their members, allowing credit unions access to subsidized public deposits would further this purpose. It was also asserted that credit unions have the potential to better reach the unbanked population, which is the underlying purpose of the BDD program."

 

The Banking Department "would be inclined to advocate" for their inclusion, the report states, with restrictions.

 

The report reiterates what we've already known- that this model provides access to products and services that otherwise would not be available. The primary recommendations - provide financial education, more services - amount to greater demand for the program, not less. Community groups calling for more merely means that what they've seen so far, they've found reason to like.

 

Other recommendations, such as preserving the district when banks change hands, and responding to banks' calls for amended collateral rules, show that now that the bricks-and-mortar stage has ended, the program is preparing for the long run.

 

And California can learn from New York's experience. With an ordinance in the works in Los Angeles and legislation moving forward in Sacramento, and with many partners supporting the statewide measure, the lessons come at a very important moment. As Olivia Calderon said at the LA BDD press conference, we are perfectly positioned to learn from and expand upon the New York model, its successes, and its areas needing improvement.

 

It's clear that California should require reporting, so that the progress and effectiveness of the program can be transparently known and improved as needed. It's also clear that financial education and low-cost services are key- that's something participating banks and credit unions can expect to be outlined in the California legislation. As far as the credit union question, both the Sacramento and Los Angeles models already include them- which, in light of the New York program, will likely strengthen the program as well as avoid the fight down the road.

 

Ultimately, New York's recent findings show the importance of an integrated approach. This program is just one of the tools in the tool box, and getting physical banks into communities is the necessary first step in banking the unbanked. Programs like Bank on play an important role as well. California's vastly varied landscape will need a complete approach, and BDDs are a part of that.