Banks on wheels are temporary solution for underbanked areas

NEW YORK – Parked on the curb of West Tremont Avenue in the Bronx, amid a chain of sedans and minivans, there is sometimes a bank on wheels.

The Lower East Side People’s Federal Credit Union, a nonprofit that provides banking services to New York’s financially underserved neighborhoods, launched its mobile branch in a refurbished school bus in 2014 following the devastation of superstorm Sandy, which forced the closure of its brick-and-mortar branch. It has since upgraded to a specially designed Mercedes-Benz van that serves New York’s Lower East Side, East Harlem, the Bronx and Staten Island, partnering with community groups in the boroughs.

The van provides most of the services of a traditional bank like opening a savings or checking account, securing loans and providing financial advice. It does not, however, have an ATM due to the security risks that come with storing cash in a vehicle.

Banks on wheels are an attempt to repair the gaps within the U.S. banking landscape, which disproportionately impact Black and Hispanic communities. According to a 2022 Federal Reserve report, 40% of Black individuals are unbanked and underbanked, the highest of any racial demographic in the U.S. They are followed by Hispanic individuals, 29% of whom are either unbanked or underbanked.

Adults are considered unbanked if they do not have a bank account and rely exclusively on alternative financial services that charge high fees like check cashing, payday loans, pawn shop loans, as some examples. Underbanked means one has a bank account but still partially relies on alternative financing.

To be sure, the number of unbanked individuals has seen yearly declines, coming down to 4.5% in 2021 compared to 8.2% in 2011, according to a 2021 report from the Federal Deposit Insurance Corporation. That decline correlated with a rise in online banking usage, one of the primary drivers of brick-and-mortar consolidation.

But given existing digital divides, if online banking fully replaces access to in-person branches, financial equity in the U.S. would remain under threat.

Banks on wheels aim to offer at least a partial solution to the increasingly deserted banking landscapes in minority communities. But even the people driving the efforts do not see them as a permanent fix.

“A physical branch is the solution. The mobile branch is a temporary thing to try and build up the physical branch – to build up membership and to build up partners,” said Alicia Portada, a spokesperson for the FCU.

Still, Portada cannot ignore the value of the mobile branches as credit unions and banks shut down faster than they open annually: “It is absolutely needed to have other options.”

BankonBuffalo, a regional bank located in Buffalo, New York, debuted its own bank on wheels this winter.

Darnell Haywood, community responsibility officer at BankonBuffalo, said that at one point, Buffalo had a bank “on every other corner within the city.” Now, Haywood describes an emptier banking landscape. The nearest bank branch is more than two miles from the city center, which, he notes particularly impacts the area’s Black and brown residents.

“When you think of Black and brown communities when it comes to banking, when it comes to anything regarding finances, the No. 1 reason why they may not have financial knowledge is because they’re not privy to access,” said Haywood. BankonBuffalo’s mobile branch is an attempt to bridge those access gaps.

Banking deserts

On a chilly January day in the Bronx, the FCU mobile branch had no pre-booked appointments but was ready to accept walk-ins. It was parked outside the University Neighborhood Housing Program Resource Center, an affordable-housing nonprofit. The mobile branch partners with a variety of nonprofits like the UNHP.

A UNHP member, who did not provide her name, entered the resource center office in the midafternoon. As she chatted with Jumelia Abrahamson, a UNHP director, she also met one of the LES People’s FCU representatives, Cristal Veras. After a quick conversation with Veras, she entered the mobile branch to learn more.

Inside the van, there were two small employee desks, a laminate bench for clients to wait for service and a couple of filing cabinets. It took some maneuvering for the customer to navigate the narrow aisle of the vehicle. Then she found a seat across from Gian Alvarado, the bank’s marketing and outreach specialist, who walked her through her lending and credit options. After consulting with Alvarado for roughly a half hour, the customer exited the bank on wheels, having applied for a $12,000 loan.

Historically, banks on wheels tend to make their appearance after disasters like Hurricane Katrina or public health crises, when brick-and-mortar branches are forced to pause operations. In 2022, the Lower East Side FCU mobile branch saw membership grow even higher than it had during the earlier days of the Covid pandemic, according to Portada, the FCU spokesperson.

And as online banking takes off, boosted by the pandemic, more brick-and-mortar locations are closing their doors. In 2021, U.S. bank closures reached a record high. That trend has made a lack of access to banks more than a temporary problem.

Bank deserts are any areas where there are no bank branches within 10 miles of its center, according to the U.S. Census Bureau. To be sure, many areas that do not meet that formal criteria still lack considerable access to financial services.

Nearly 10% of all U.S. bank branches shut down between 2017 and 2021 – one-third of those closures were in majority-minority and low- to moderate-income neighborhoods, according to a report from the National Community Reinvestment Coalition. When the pandemic began in March 2020, the closure rate doubled from 99 to 201 per month.

The acceleration of bank closures has only worsened preexisting gaps in Black and minority neighborhoods.

The Bronx, for example, which is predominantly populated by Hispanic and Black residents, has the fewest bank branches per household of any New York borough, according to the Association for Neighborhood & Housing Development. The borough currently has 123 bank branches, according to a national bank branch location database, down from 144 in 2018.

A Brookings analysis found that in 2017, Black-majority ZIP codes nationwide had substantially less banking competition than non-majority-Black ZIP codes, meaning that there were fewer bank branches within those areas. Less banking competition often leads to higher interest rates and lower saving rates for customers.

The racial divides of the banking landscape are especially visible in Baltimore.

Lawrence Brown, a researcher of racial equity and author of “The Black Butterfly: The Harmful Politics of Race and Space in America,” has analyzed geographic data of the city to outline what he coined a “Black butterfly.” That is, Baltimore is composed of a “white spine” — an affluent, predominantly white strip running down the center of the city — with “Black wings” where less developed, predominantly Black neighborhoods are concentrated.

Baltimore’s Black butterfly corresponds with which parts of the city receive investment, and, consequently, where banks are incentivized to keep doors open. For example, in Baltimore’s Roland Park, a predominantly white residential community, there are four banks on the same side of the street within one corner.

“But there are large areas, predominantly occupied by Black Baltimoreans, where they have no bank, no loan officer that they can sit down and talk to,” said Brown.

Though banking deserts are on the rise in the wake of the pandemic, lack of access to financial services in Black-majority neighborhoods is not a new phenomenon.

A brief history of banking while Black in America

The fact that banking access is disproportionately limited in Black-majority neighborhoods is, in part, a lingering effect of 20^th century redlining policies, according to Brown.

After the stock market crash of 1929 and the ensuing Great Depression, the federal government created the Federal Home Loan Bank system to provide loans for housing development.

“The federal government turns the banking system into a system that redlines Black neighborhoods,” said Brown.

The FHLB provided economic development loans based on maps that outlined Black areas in red, pointing to where loan officers were to limit resources. A similar practice was conducted for Federal Housing Administration loans.

In the latter half of the 20^th century, the federal government officially outlawed redlining. In 1977, Congress passed the Community Reinvestment Act, which said that banks must start lending in minority and low-income neighborhoods. According to Brown, it was not a total fix.

“Now these neighborhoods have banking institutions, but they’re receiving predatory loans. So it’s not quite the same and as it evolves, it is still having these very racialized predatory impacts,” said Brown.  

’13 generations behind’

Rashida Webb is a Black business owner who runs Salon Rx, a beauty salon in south Baltimore. When she sought seed money to start her business, she knew a traditional bank loan wouldn’t be an option. Loan officers had regularly told her that her debt, a product of her student loans, is too high.

“Well, of course. Because I’m a Black American. I’m 13 generations behind other people in this country so it’s going to be different for me,” said Webb. To get her business off the ground, she resorted to payday loans of a couple thousand dollars with roughly 17% interest rates.

“Stuff like that sometimes has to be an option when you have to put money down on a place or buy supplies,” Webb added. “And even though I’m able to pay off this predatory loan, a bank won’t give me the money because their criteria is your debt-to-income ratio. And if you’re a Black American, most likely your debt-to-income ratio is high for reasons that are out of your control.”

Given how many times Webb has been denied a loan from traditional banking institutions, she said she does not trust them. While she has not heard of mobile branches in her area, Webb said she would “definitely use a bank on wheels,” if it was properly regulated and evaluated one’s eligibility for loans on a more individualized basis.

Webb is not the only Black entrepreneur who has had to rely on alternative financing methods to launch a small business.

Dwight Campbell, who co-owns Baltimore plant-based ice cream purveyor Cajou Creamery, used what he calls “out-of-the-box” funding strategies.

Campbell and his wife, Nicole Foster, who runs the business with him, launched a Kickstarter campaign to fund their first machine but otherwise paid for everything out of pocket to launch their business while working full-time jobs. Campbell and Foster now run their ice cream business full time but are still looking for alternative ways to raise money to fund expansion.

“The space for Black capital is very small. It’s like you’re in a museum, but the only space you have is a broom closet,” said Campbell. “There’s no doors open for capital unless it’s very, very expensive money.”

Foster has not personally heard of banks on wheels in Baltimore, but she finds banking that emphasizes community relationships appealing. She said that given the purpose of banks on wheels to bridge financial access in underserved communities, it could have been helpful in the early days of Cajou Creamery.

“Had that existed, I think it’s something we would have tapped into,” said Foster. “If we find one now even, it might be something we tap into.”