transaction account with few or no fees was something offered only to a
bank’s most profitable and creditworthy customers-locking millions of
low-wealth households out of the mainstream banking system. By 1998,
with more and more employers offering direct deposit, and fewer
financial institutions willing to cash checks for non-customers, a
basic transaction account was a necessity.
The announcement that the Columbus-based Bank One would acquire
Chicago’s then largest depository, First Chicago NBD, provided a window
of opportunity for advocates to push for more inclusive account opening
standards and ensure that basic checking accounts were available to the
greatest number of low-wealth people possible. The Chicago CRA
Coalition, convened by Woodstock Institute, led this effort and worked
with Bank One to develop a series of written, verifiable community
reinvestment goals. At the top of the list for Woodstock and the
Coalition was the establishment of modified checking requirements that
would make it easier for low-wealth people to open accounts. After
months of tense negotiations between representatives of Chicago’s
affordable housing, financial education, and economic development
community and senior representatives of First Chicago, an agreement was
reached in Fall 1998.
While the agreement also set strong goals for mortgage and small
business lending, one of the key commitments the Chicago CRA Coalition
received from the bank was the launch a pilot program to test more
inclusive criteria for new checking accounts. Dubbed the “Alternative
Banking” program, these new standards allowed borrowers with no credit
history or a past due account to open a checking account. If approved
using the Alternative Banking criteria, the bank agreed to reduce the
initial deposit from $100 to $10. To address the bank’s concern about
the risk of bad checks, funds availability was reduced from $500 per
day to $50 per day for newly deposited checks. If a customer remained
in good standing for 12 months, the bank agreed to graduate them to a
standard account.
The bank’s existing disclosures were insufficient to effectively
communicate these conditions to an unbanked or previously banked
audience. To develop new disclosure materials, the Chicago CRA
Coalition requested that the bank work with an expert with experience
working with an unbanked audience. The bank agreed, and, in
consultation with the bank’s legal department, the expert helped
develop disclosure materials readable at a sixth grade level, in place
of the bank’s existing materials developed at the post-high school
reading level.
In Spring 1999, Bank One launched the “Alternative Banking” pilot in
three Chicago communities––Englewood, Logan Square, and North
Lawndale. The Chicago CRA Coalition and the bank chose these
communities based on estimates of the number of unbanked customers and
potential support from the bank manager––a factor both sides recognized
was critical to the pilot’s success. To market the pilot, the bank
provided grants to several community-based organizations. These
organizations also provided direct financial education training to
potential customers and worked with them to understand the account
disclosures and statements.
Four years later, the Chicago CRA Coalition revisited the “Alternative
Banking” criteria and its effectiveness in extending affordable
checking accounts to previously unbanked people. During the
renegotiation of Bank One’s CRA commitments as part of its merger with
JP Morgan Chase, bank staff recognized the original pilot’s success in
changing the way their checking accounts were priced. The bank also
noted that most of the new customers acquired through the pilot
maintained healthy account balances and, through cross-selling of
additional products, established profitable, long-term relationships.
By 2004, the “Alternative Banking” credit check criteria had been
adopted throughout Bank One’s national branch network and the
once-standard $100 initial deposit had been waived for all customers
with direct deposit.
Woodstock Institute and the Chicago CRA Coalition, now expanded
statewide and re-launched as the Illinois Community Investment
Coalition, continue to convene community stakeholders, bankers, and
regulators to hold banks accountable for their services and lending
practices in low-wealth communities.