Latinos and banking: An uneasy combination

Published on Sunday, 15 June 2008 09:06

As her 3-year-old son pulls car keys out of her purse and giggles as they rattle, Elisabeth Sierra and her husband read over loan forms. The Sierras, of Willow Spring, N.C., have come to the bank to refinance the loan on their Ford F-150 pickup truck.

In the eight years since they moved to the United States from Mexico, this is their first trip to a bank to establish an account.

“We just save our cash at our house,” Sierra said in Spanish through a translator.

Latinos are the fastest growing population segment in North Carolina and are making a huge impact on the state’s economy, but they often lack the resources – checking and savings accounts, access to sound loans and ways to build credit – to become financially secure. As local and national banks rush to fill the void, they face cultural and institutional barriers to reaching this untapped market.

The Federal Deposit Insurance Corp. estimates that half of the United States’ Latino population does not have a basic checking account.

The Sierras are part of this group. They go to Four Oaks Bank and Trust in Fuquay-Varina once or twice a month to cash checks and send money to her mother in Michoacán, in western Mexico. They never used a bank in Mexico because they didn’t have any money, she said, laughing.

Entrepreneurs and big businesses alike are trying to take advantage of opportunities in the Latino market and the business of people like the Sierras, who have little familiarity with the banking system.

Latinos now account for 7 percent of North Carolina’s population, and the Latino community had a $9.18 billion impact on North Carolina’s economy in 2004, according to a study by the Frank Hawkins Kenan Institute of Private Enterprise at UNC’s Kenan-Flagler Business School.

“Hispanics, as is common with most ethnic entrepreneurs, rely heavily on personal and family savings to start their businesses,” the report states. “Clearly, there is an opportunity for North Carolina’s financial and insurance industries to address these needs.”

Startup banks, credit unions and some of the country’s largest commercial banks are heeding that advice. All combine basic banking services with an outreach mission, with many citing a goal of educating as well as serving the Latino community. Nuestro Banco and Banco de la Gente have joined the Latino Community Credit Union and mainstream banks in competing for Latino customers.

When the Sierras bought the truck, they agreed to a 21 percent interest rate, Sierra said. They know little about financing and didn’t speak English well enough to read the complicated loan forms.

At Nuestro Banco, a Latino-oriented bank on the border of Raleigh and Garner, the Sierras will refinance their loan at a 12 percent interest rate. They completed the entire process with the assistance Spanish-speaking loan officers and using Spanish-language loan forms by presenting a United States driver’s license and an individual taxpayer identification number, or ITIN, from the Internal Revenue Service.

The new loan is a first step in banking for the Sierras. Elisabeth Sierra still pulled a wad of cash out of an envelope in her purse to deposit. But as she and her husband fill out forms, she began inquiring about other bank services.

“How is a credit card different from a checking card?” she asked.

“A new industry”

Nuestro Banco, the first independent, Latino-focused commercial bank in the state, opened its doors in September 2007. The private bank’s board of directors saw the potential of the Latino market discussed in the Kenan Institute study, said David Flores, the bank’s CEO.

“A few years ago, I was talking with someone from the FDIC, and the comment was made that the Hispanic community is sending 20 percent of their income overseas,” Flores said. “I wondered, ‘What’s happening to the other 80 percent?’”

Despite political posturing about illegal immigrants during election seasons, immigration is not some new phenomenon and serving immigrants has always been a challenge, Flores said.

“Immigration has always been the solution to growing the United States,” he said.

“It balances the supply and demand of labor. More and more people in the United States are going to college. With the increased education level of the population, the existing population doesn’t want to do infrastructure jobs. People are being pulled here.”

Bringing Latinos into banks involves the factors – excess profits, no proven business model, limited competition and the potential for long term growth – that shape the “development of a new industry,” Flores said.

Flores and his business partners chose North Carolina over Texas and California because the state’s Latino community is growing so quickly.

In Houston and in California, the issue is access to service,” he said. “Here, it’s integration.”

His experiences working in Hong Kong and in Argentina for JP Morgan helped him understand the “psychology of an immigrant” as a native New Yorker, he said.

Flores said he sees the Latino immigrant community facing two types of hurdles in banking: the institutional aspects of gaining legal status and acceptance and the cultural sense of humility, a feeling that their money does not belong in a bank.

“People believe (Latinos) don’t trust banks, but (Latinos) don’t understand,” Flores said. “With Nuestro Banco, “our bank,” we’re sending two messages. It’s your bank, with a professional environment, and you deserve it.”

Lowering the hurdles

Banking and cultural hurdles must be overcome simultaneously, said Gilma Jimenez, Nuestro Banco’s assistant vice president.

“The Hispanic community is growing and unserved,” Jimenez said. “We are serving the Hispanic community in Spanish. When people need to make a financial decision, they can make them in Spanish.”

The bank offers walk-in services without requiring an account, such as check cashing – with a 1 percent fee – and remittances, or remesas, through Viamericas Inc. These services bring most of the bank’s first-time customers inside, Jimenez said.

“We have so many services they can use without a checking account,” she said.

But what keeps them coming is the culturally sensitive atmosphere, she said. Every bank employee and banking form is bilingual, and Nuestro Banco keeps later and longer hours to accommodate working customers. The building itself has a terra cotta roof and other cultural touches.

Twenty percent of Nuestro Banco’s customers who come into the bank for counter services eventually open a checking account, Flores said.

“We thought (the transition from counter services to accounts) would happen yearly, but it’s happening monthly,” he said.

Speaking the language is a major barrier to Latinos trusting American banks, Jimenez said, adding that understanding financial jargon is a native language is difficult enough.

“You can look at a statement and not know if that number is your balance or your interest due,” she said.

Another barrier is inexperience with financial services. Some Latino immigrants arrive from countries without a deposit insurance system – when a bank goes out of business, its customers’ money is gone, said Angél Romero, director of communications for the Latino Community Credit Union in Durham.

“Some people, in their home countries, if they have experience with financial institutions that experience has been negative,” Romero said.

The credit union, a project of the State Employees’ Credit Union and Self-Help, opened in 2000 and now has five locations across the state. Like Nuestro Banco, the credit union offers basic banking and remittance services, but only to members.

Education is key

Eighty-five percent of the credit union’s members are immigrants, and about 80 percent of those are immigrants from Hispanic countries, Romero said.

Education is the key to bringing Latinos into banks, both Romero and Jimenez said.

Romero and local filmmaker Rodrigo Dorfman helped produce “Los Sueños de Angélica,” a three-part educational television series that has been featured in national Latino film festivals. Shot in Durham, the series chronicles a couple trying to purchase their first home.

The credit union, with funding from the National Endowment for Financial Education, hosts a six-part workshop series on a variety of financial issues, with installments including using credit, budgeting and increasing savings.

Nuestro Banco is also using TV to reach the Latino community, broadcasting regular five-minute segments on Univision. The bank also runs advertisements on 96.9 FM La Ley radio and in El Informador, a monthly Spanish-language newspaper published in Raleigh.

The bank hosts a variety of events, including a recent voter registration drive. Fliers in Nuestro Banco advertised a May 3 celebration of new banking services – a credit card, interest-bearing checking accounts and a college savings account – in conjunction with Cinco de Mayo, a Mexican holiday. “Come with your family and take advantage of the opportunities,” the flier reads.

Once banks gain Latino customers’ trust, customers are loyal, said Ana Castellaños, an associate at Nuestro Banco. New customers come in for information, hear the employees speaking Spanish, and come back with their papers and their money, she said.

“We are a safe organization instead of putting money under the mat on the bed,” Jimenez said. “We want them to be part of the baking experience, and not delay their opportunity to grow their money.”

Identification woes

Banks are working around immigration red tape to bring in customers.

Following the Patriot Act, banks and other institutions are required to ask for two forms of identification: a picture ID and a form of ID to prove nationality. To aid Mexican nationals living in the United States, Mexican consulates began to issue the High Security Consular Registration Card, known as a matricula consular.

The Mexican consulates across the country use the same database to register applicants, to avoid duplication of IDs.

“In reality, they are used mostly in the U.S. as an ID,” Romero said. When the Raleigh consulate first began to issue the matricula consular, obtaining one took a few days. When Sierra applied for hers in 2001, she spent the day at the Raleigh consulate and left with her card. Now, Romero and others said, the process can take 5 to 6 months.

Mexican nationals can use the matricula consular as one form of photo ID to open a bank account.

But foreign governments are not the only source of official identification.

The ITIN is a nine-digit IRS tax processing number issued to individuals who are not eligible to obtain a Social Security number, no matter what the individual’s immigration status.

The IRS does not authorize ITINs to be used as valid identification outside the tax system because the IRS does little to verify the information submitted, but many banks, including Bank of America, Citibank and Wachovia, accept ITINs as one of the required forms of identification.

Flores said he thinks the more general use of ITINs is an example of how banks are meeting consumer demand despite the immigration system’s backlog.

“The banking system itself is not impeding the process (of bringing Latinos into banks),” he said. “Immigration controls and the immigration system have not scaled up.”

Maria Garcia, of Garner, came to Nuestro Banco to open a savings account and update her W-7 form, which is now filed to obtain an ITIN.

Garcia moved to the United States from Colima, Mexico, 10 years ago. She spent seven years in Washington and presented a Washington driver’s license as well as a matricula consular and Mexican identification papers to open her new savings account. Her husband does not have enough identification to co-sign on the account, she said, so he waited outside with their three children.

She has a checking account at RBC Centura but didn’t want to open another account there.

“We wanted to try another bank,” she said.

Having a Mexican consulate nearby is helpful, but banking and other daily tasks are harder in North Carolina than in Washington, she said, because fewer people speak Spanish.

As Castellaños entered Garcia’s information into the W-7 form, Garcia asked about how she can build credit and the bank’s requirements for opening a checking account.

Garcia explained that she had some difficulty using her account at RBC. When she deposited a personal check later than midday, the bank did not credit her account until the next day, and she had overdrawn her account without realizing what had happened.

Though she speaks nearly fluent English, Garcia said she does not read or write in English as well, which made understanding the bank forms difficult.

“(The language barrier) is such a problem,” Castellaños agreed.

Garcia said she appreciated having banking terms explained to her in Spanish, and wanted to keep coming into the bank.

“I want to save for the future, for my babies’ education.”

Meghan Davis graduated from the School of Journalism and Mass Communication in May. She interned at the Triad Business Journal and the Greensboro News & Record.

Banco de la Gente

FDIC – Hispanic Outreach Financial Education Program

Internal Revenue Service – About ITIN

Frank Hawkins Kenan Institute for Private Enterprise – N.C. Hispanic Impact study

Latino Community Credit Union

National Endowment for Financial Education

Nuestro Banco