The call for action Tuesday came in response to The Buffalo News series "The High Cost of Being Poor." The News found the Buffalo region has a two-tiered economy in which those with the least pay the most just to get by - paying illegal or high fees for check cashing, food, appliances, insurance, mortgages and car loans because of where they live or because they have little upfront cash.

"These practices keep the poor and working poor forever in poverty," Assemblywoman Crystal D. Peoples, D-Buffalo, said by e-mail. "The business men and women who are comfortable with these tactics need oversight."

"The changing economy over the last 20 years makes it almost necessary for us to re-examine the rent-to-own and check-cashing industry, to make sure people have access to basic appliances and banking services," said Majority Leader Paul A. Tokasz, D-Cheektowaga, in announcing the hearings.

Tokasz, Peoples and other state lawmakers and regulators, as well as local officials, want to attack the problems on several fronts:

• Re-examine the state's 1986 rent-to-own law that, in effect, lets the industry set its own prices. Tokasz notes "many things have changed in society in the last 20 years," and that law may have to change, too.

• Increase the state Banking Department budget to beef up enforcement against stores running illegal check-cashing operations, and give the department clear authority to go after violators.

• Revisit the state's predatory lending law - enacted just three years ago - to see if stronger measures are needed to protect consumers from inordinately high mortgage interest and fees.

• Determine if Buffalo can regulate stores that cash checks. Common Council Majority Leader Dominic J. Bonifacio Jr. said such stores at least should be registered with the city. He said he plans to have the Law Department research whether Buffalo can create its own license "and put regulations on the city license as to what we feel is a fair charge to cash a check."

Bank services needed

While shutting down illegal check cashers is a necessary step, Masten Council Member Antoine M. Thompson said this will accomplish little unless there is a simultaneous push to make more banking services available. The inability to get bank accounts is why most people pay high fees to cash checks at corner stores in the first place, he noted.

"The crackdown has got to come when more financial institutions move into these neighborhoods and provide these services," Thompson said. "You can't have one without the other . . . many of these areas are underbanked."

Assemblyman Darryl C. Towns, chairman of the Banking Committee, which will hold some of the Buffalo hearings, agreed. Lawmakers are "working with the banks to get greater presence and decrease the number of New Yorkers who are unbanked," he said.

The hearings will deal with that and other problem areas.

"We're looking to definitely begin to address these issues. We want to find additional remedies," said Towns, D-Brooklyn. "Legitimate business in New York State is welcome, but we want to decrease the number of . . . ways that New Yorkers are taken advantage of."

For their part, banks say they are trying to help the working poor. As a result of state and federal laws - particularly the 1977 Community Reinvestment Act requiring banks to make investments and loans in low-income and minority areas in which they take deposits - banks have developed an array of offerings:

• Low-cost, low-balance checking accounts for low-income customers with good credit. For those with a history of bouncing checks, some banks offer remedial accounts. "These are people we wouldn't otherwise be able to open an account for," said Gary Quenneville, senior vice president and head of Western New York retail banking for KeyBank.

• A grant-funded savings account program, known as Individual Development Accounts, that puts up $3 for every $1 that low-income customers save - up to a total of $5,000 - toward purchasing a home, starting a business or attending college.

• Lower-cost mortgage and closing fees for borrowers at or below 80 percent of the area's median income, as well as programs to help customers rebuild their credit or qualify for a loan without traditional credit.

And the banks can cite success stories, like Gerldine Wilson's.

The longtime former Head Start teacher, who graduated from the University at Buffalo in 1985, lived with relatives in a rented house on Fillmore Avenue. She looked wistfully at a pretty home on Victoria Avenue but thought buying it was a pipe dream when it came up for sale. After all, she had no money and bad credit, had never owned a home and had opened a small account at Greater Buffalo Savings Bank only the year before.

Success story

Still, a friend persuaded her to ask the bank for a $10,000 mortgage. "I prayed that they would not escort me out of the bank because I had nothing to come to the table with," Wilson said. "We were probably the most unlikely candidate for a house."

To her surprise, the bank said yes. Today, the 49-year-old grandmother lives with her son, daughter and grandson in that single-family house. "I feel like I'm living in a huge dream," she said. "To be able to walk into a bank and be able to ask for a house was huge for me and very, very frightening."

Despite such success stories, critics say banks - and those who regulate them - can do more, and that many of the financial obstacles facing low-income workers start with lack of access to banking services. Of the 72 bank branches in Buffalo, 18 are on the East Side.

Critics say that's because regulators go too easy on banks, allowing them to close branches whenever and wherever they want. "If [banks have] been closing disproportionately in low-income neighborhoods and opening in upper-income neighborhoods, then someone's been sleeping on the job," said John Taylor, president and CEO of the National Community Reinvestment Coalition.

"If I were grading them, I'd give them an "F,' " said former Rep. John J. LaFalce, who was a member of the House Banking Committee, adding that regulators should crack down on fees as well as practices. "They're not meeting minimum standards in protecting consumers," he said.

Bankers say some regulation goes too far, making it too expensive and burdensome to do business in low-income neighborhoods. They say lawmakers and regulators should specify what is acceptable lending to less credit-worthy borrowers, so banks couldn't be unfairly accused of abuses.

The state has tried to make it easier for banks to open branches in lower-income neighborhoods by subsidizing the operations - through government deposits - so the branches become profitable.

There are two such branches in the program in Buffalo, both at Greater Buffalo Savings Bank. A third is planned on the East Side, said bank president and CEO Andrew W. Dorn Jr.

Using the same program, First Niagara Bank also plans two branches in lower-income Buffalo neighborhoods, while M&T Bank is replacing a branch on Jefferson Avenue.

Extending oversight

Bankers and consumer advocates also urge lawmakers and regulators to extend banking and community lending laws to other financial industries, such as credit unions, mortgage brokers and nonbank finance companies. Many are licensed but not actively regulated, or are subject to fewer rules.

"Banks have to meet very high standards that no one else has to meet," said Eugene Ludwig, the Clinton administration's top bank regulator. "It's wrong. We ought to be demanding much higher standards of all providers and supervising them in a much more aggressive fashion."

Tokasz, the Assembly majority leader, said lawmakers recognize that many of these businesses are serving people with poor financial histories.

"Certainly these businesses are at risk. You deserve some sort of a premium, but the question always becomes: Is this over and above what's fair?" he said. "That's the analysis that the Legislature needs to consider when it takes another look at these existing laws."

If there's one thing all sides can agree on, it's the need for greater consumer education and financial literacy for low-income people who are most subject to exploitation. Many such residents say they've never heard of the programs banks and community organizations offer.

Advocates say such consumers need to be told what's out there and what to avoid. "There are so many things that we need to tell people who are low-income," said East Side housing activist Michelle Johnson. "There's no handbook for being poor."

e-mail: jepstein@buffnews.com
and rwatson@buffnews.com