A new program in the works by the Rapid City Community Development Division would help people who don’t use traditional banks set up accounts, start saving money and get on the path to financial security.

The goal is to help people overcome poverty and rely less on public services, said Barb Garcia, community development specialist for the city.

“Let’s educate them, get their credit cleaned up if we can and show them how they can save,” she said. “It is going to be an asset-building, long-term program to look at the all the different ways we can help people pull themselves up to the next level.”

The Bank on Rapid City program would help people who are afraid or believe they are unable to use banks set up checking and savings accounts. It would also provide financial incentives for saving money and classes on how to manage an account.

The program was pioneered by the city of San Francisco, and through the National League of Cities, other communities can use the same model, right down to the promotional materials. 

Rapid City is one of eight cities chosen to participate this year in a program in which the National League of Cities provides free technical assistance, including the ability to contact officials in other cities where the program has been successful.

The Bank on San Francisco program started in 2005 when leaders were concerned that residents were spending million of dollars on payday loan and check-cashing services and not taking advantage of less expensive services at traditional banks.

The reasons were the same Garcia and others see in Rapid City. Some people are intimidated by the dressed-up banking culture. Some are afraid they don’t qualify for accounts because of financial mistakes such as overdrafts or high debt. Some are afraid their accounts will be garnished for child support or by creditors. Some just don’t understand what banks can offer or how to manage a checking account.

But without banks, Garcia said, people have a hard time saving money, and they spend money cashing checks and paying bills that could otherwise go to feeding their families.

Garcia said it sounds obvious, but many social problems are caused or exacerbated by a lack of money. Job skills and education are ways to increase a worker’s assets, but another way is to help him or her save more of the money currently earned.

“The goal behind it is to help low-income people build their assets,” she said.

What happens at tax time is one example of how a lack of savings can create a snowball effect, Garcia said. A family with no debt would be able to save their tax refund, but another family might need the money to make car repairs, pay rent or pay off debt incurred at the holidays.

One facet of the program would reward participants for saving at least half their tax refunds by matching the money dollar for dollar if it is left in savings for a year.

But before working out all the details of the program, the city is trying to find out how many people in the community might be candidates for participation. A steering committee that includes Garcia, city aldermen Deb Hadcock and Lloyd LaCroix and representatives of local financial institutions and social service agencies has created a survey and is distributing it through the Cornerstone Rescue Mission and Western South Dakota Community Action.

A study from the Pew Charitable Trusts found that Rapid City might have as many as 25,400 “unbanked” households, or those that do not use traditional banking services.

But local officials believe that number is high, both because it represents a large portion of the total number of households in Rapid City, and because the same Pew study said the city of Denver has 36,300 unbanked households, but Denver’s population is many times larger than Rapid City’s.

The steering committee hopes its survey will provide a clearer picture of the need.

Mayor Alan Hanks has invited all banks, credit unions and lenders in town to participate in the initiative, Garcia said, and several have committed to joining Bank on Rapid City.

The program will require banks to offer products including savings accounts with a minimum balance of $100 or less, and some forgiveness on issues like an overdraft or bounced check.

“We’re asking them to give people a second chance,” Garcia said. “There’s no real downside. We’re not asking them to make any special exceptions other than what they already have the ability to do.”

Funding for some of the savings-matching programs is available through nonprofit agencies, such as Consumer Credit Counseling Service of the Black Hills. Participating banks will also contribute to the costs of the program.

Bonnie Spain, chief executive officer of CCCS and a member of the Bank on Rapid City steering committee, said the use of a traditional bank or credit union is essential for families who want to get ahead. For example, it’s hard to buy a home or a car or go to college without the ability to take out a loan at reasonable interest, she said.

“If you have an account with a bank or a credit union, you’re going to build the relationship,” she said.

People are legitimately concerned about how past financial mistakes could affect their ability to get a bank account, but those problems can be solved, Spain said.

“You want to address your finances head on. Put a plan together, so you don’t have to worry about those things,” she said.

Banks already have flexible products, such as no-fee checking accounts, that can serve most any client’s needs, said Patty Hogan, district manager for US Bank, which was also involved in Bank on San Francisco.

“I think a lot of banks have done things in the last few years to make them more welcome,” Hogan said.

She said banks have every reason to participate in the program.

“It’s just going to add customers to your institution, and we want customers, and we want people to get into the mainstream of banking.”

Marnie Herrmann, vice president of marketing for Security First Bank and a member of the steering committee, emphasized that the goal is not to do away with alternative financial institutions such as payday loan outlets.

“It’s really just educating people about financial services in general and helping them to make optimal decisions,” Herrmann said.

For information about the Bank on Rapid City program, contact Barb Garcia at 394-4181.

Contact Barbara Soderlin at 394-8417 or at barbara.soderlin@rapidcityjournal.com.