Lending Circles program helps state's 'underbanked' residents

A nonprofit credit counselor is working to change the course of a troubling consumer banking trend in Nevada.

Financial Guidance Center based in Las Vegas offers several classes and programs, including a new one called Lending Circles, designed to bring so-called unbanked and underbanked individuals into the banking fold.

Nevada has the highest rate in the country of underbanked households, or households who use few traditional financial services such as credit cards and checking accounts, according to the Federal Deposit Insurance Corp. And the problem is getting worse. In 2009, 20.2 percent of households were underbanked; in 2011 that jumped to 31.2 percent.

The number of unbanked households, or consumers not utilizing any mainstream banking services, rose, too, going from 66,000 or 6.6 percent in 2009 to 77,000 or 7.5 percent in 2011, according to the FDIC.

The trend is more than just a problem for the banks, which are losing out on potential business. The unbanked and underbanked are missing out more, says the nonprofit.

"One big issue is credit," says Jill Perry, northern Nevada director of the center, which was formerly known as Consumer Credit Counseling Service. "And getting unbanked people to understand that they a need a bank account to get credit and move forward with their lives."

Lending Circles, the center's latest program, is based on a concept used widely throughout parts of the world where access to banking services is limited. Here's how it works: a group of people contribute a set amount each month to a fund and each month one of the members gets the full pot to do with as they please such as paying bills or launching a business. To participate, each member must have a checking account or set up one that can be debited monthly.

"They literally loan money to themselves," says Perry. "The main selling point is it improves their credit."

Lending Circles launched in June, 2012, and so far 11 circles with a total of 64 members have saved and loaned themselves a total of $36,225, according to Michele Johnson, the center's president and chief executive officer. As part of the process, the center runs a credit report on each participant before the program starts and another after 12 months, when the circle ends. Some individual credit scores have improved by as much as 50 points, says Johnson.

The program is just the latest in an array of offerings Financial Guidance Center has been offering for years to low and moderate income individuals.

The center has been working with Nevada State Bank, for example, for 20 years to offer Fresh Start Checking. The program is geared to consumers who have had trouble in the past with bounced checks or overdrafts and are unable to establish a checking account elsewhere. The bank verifies no money is owed elsewhere or, if it is, that the consumer pays off the debt before opening a Fresh Start account. Account holders are required to attend financial training seminars held by Financial Guidance Center.

"It's kind of a trial," says Drew Zidzik, senior vice president and community development manager with Nevada State Bank. "After a one-year period we make sure they're in good standing and there are no overdrafts," then account holders can open a regular checking account.

The bank and non-profit also work together on three types of individual development accounts, each with an aim to saving for the purchase of an asset. The savings are matched through two programs, one via the Federal Home Loan Bank of San Francisco and two others in conjunction with Health and Human Service Assets for Independence, as well as privately-raised funds.

The home ownership account is matched three to one up to $15,000 while the accounts for education, either college or vocational training, and the one for entrepreneurship are matched two to one up to $4,000.