This is the proposal which Strike Debt Bay Area submitted through Vallejo’s participatory budgeting process for a vote of the people of Vallejo, along with a detailed budget. We hope to know soon whether or not we got through the screening process, which is the last step before being on the participatory budgeting ballot. If we get through the screening and are selected by the voters, Vallejo will provide a few hundred thousand dollars (really!) to make this happen.
We also submitted a proposal for public finance research, which we will post here soon.
A non-profit community check cashing service in Vallejo would serve the public, especially the unbanked public (usually the poorest residents) by providing an alternative to for-profit check cashing services, without the predatory high fees charges by for-profit check cashing businesses. This business would also provide other services such as assistance in opening bank accounts, financial coaching, credit repair loans, and other financial services to Vallejo’s unbanked and underbanked citizens.
A nonprofit check cashing business, operating with a completely different set of values than market rate stores, can assist low income, unbanked people in understanding their financial situation, saving money, developing improved financial habits, entering the financial mainstream, and moving out of poverty.
Presently, the fringe banking industry (which consists of check cashers, payday lenders, pawnbrokers, rent-to-own stores, car title lenders and similar operations) earns exorbitant profits from the low-income people they claim to serve, becoming an obstacle in the path of anyone needing these services from moving out of poverty. Households using these financial services are often racial/ethnic minorities, immigrants, and/or low-income, paying stratospheric fees and interest rates that transfer a large percentage of the customers’ wages and payments to the business owners. The existing industry provides no mechanism to help low-income customers learn about their own situation, let alone move into the financial mainstream .
In contrast, a nonprofit check cashing storefront can offer the same financial services at much lower costs, leaving substantial funds in the hands of the people who need it. Such a store would provide financial counseling and planning through classes and one-on-one sessions, small business assistance, and referrals to partner banks and credit unions. This organization also would operate with greater transparency, a benefit to its customers and the city of Vallejo.
One of only a tiny handful of nonprofit check cashing stores in the United States operates in Oakland and has been serving the Fruitvale neighborhood for over five years. It is our partner in this proposal. It operates several clusters of programs located in its storefront:
- Below-market rate financial services, including check cashing, bill payments, money orders, money wiring, and debit cards;
- Affordable short-term payday loans, accompanied by coaching to help people reduce or eliminate their dependence on these loans;
- Very low cost credit repair loans (about a 12% APR) to assist people with paying off other debts, and gettting out of the borrowing cycle;
- Larger, longer-term and lower-cost installment loans than can be obtained elsewhere;
- Financial coaching and financial literacy training designed to assist low-income households in developing their wealth-building and money-management capacity. The program responds to short-term crises and creates longer-term, individualized financial plans for each participating household; the service, which is provided for a nominal fee, also includes ongoing monitoring and follow-up.
- Small business assistance through below-market rate bookkeeping and financial coaching services, to help the businesses develop proper methods of planning, creating systems, etc.;
- Social services assistance through information and referrals for housing, immigration services, food, legal services, employment and other forms of assistance.
- Consumer and business loans, and assistance in opening checking and savings accounts offered through referrals to bank/credit union partners.
This comprehensive set of services helps households move into the financial mainstream. In Oakland, these programs have already proven to save customers $150,000 to $200,000 annually.
Banks and credit unions are incentivized to partner with nonprofit check cashing businesses because financial services create a cost-effective means of reaching an unbanked or underbanked population. Referrals for store customers to partner institutions can create new, long-term institutional customers. Increased business and revenue may be generated in the short run as customers use the banks’ services, mostly smaller loans and checking/savings accounts, and become more accustomed to working with a conventional financial institution. The nonprofit organization’s financial coaching helps bring more educated customers and businesses to the banks, facilitating the banks’ business model of encouraging their depositors to make larger transactions such as home mortgages, car loans and business loans.
Market-rate stores owners are often absentee, or are part of national corporate organizations; their excess (and excessive) profits are drained from the community. In contrast, customers of a nonprofit check cashing business have more money available because of the lower-priced services, which they can spend on local goods and services; thus, the City’s tax revenue increases, which helps save jobs and fund City services.
The nonprofit check cashing store is designed to generate enough revenue to be self-sufficient after an initial start-up period or to be able to raise grants and donations to cover shortfalls until self-sufficiency can be reached.
Implementing partners: 1
The nonprofit organization which runs the Oakland store will be working with Vallejo residents and others to leverage existing knowledge and expertise in opening a second business. The proprietor of the Oakland store will divide his time between Oakland and Vallejo, at least in the build-out and first operating year of the project, and will be responsible for the setup and running of the check cashing service.