Homeless not bankless: homeless people are getting help managing their money from nonprofit banks and credit unions.

• Author: Martin, Jonathan

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The smell of wet wool and the sound of rumbling coughs filled the bank lobby as customers lined up just after opening time on a chilly Seattle morning.

They were not the usual bank clients. Most slept at homeless shelters or outside the night before. They wore scarves and third-hand coats. None had more than a few hundred dollars on deposit.

But the Compass Center bank, in a brick store front in Seattle's historic Pioneer Square, is far from a traditional bank. Its tellers are social workers. It offers free mailboxes. Its rules are simple. No fees. No rowdiness. No judgments.

The small nonprofit bank is part of a growing effort across the country to use banking as a weapon against poverty. Among families earning less than $25,000 a year, nearly a quarter--or 8.4 million families--do not have bank accounts. In credit unions and nonprofits from Florida to Michigan to California, check-cashing, direct deposit, money wiring and "second-chance" saving accounts are being offered to bring consumers into the financial mainstream.

The efforts target those who've rejected--or been rejected by--mainstream financial institutions, a group known among policymakers as "the unbanked." The federal Survey of Consumer Finances estimates that one in 10 households nationwide does not have a basic checking account.

Those households most often turn to the "fringe" financial industry of payday loans and check-cashing storefronts, a booming sector that handles nearly 300 million transactions a year. Studies by the Ford Foundation and other institutions suggest the industry's fees are so high they contribute to poor families' financial instability.

Waiting in line at the Compass bank, Ryan O'Shaughnessy, a 49-year-old dishwasher, shifted his weight, anxious to make a withdrawal and get to work. He used to have a checking account at a bank just up the street, he said, but piled up too many overdraft fees.

"I can be irresponsible with money if I have checks," said O'Shaughnessy. "I get myself in trouble. I am protecting myself this way."

BANKING THE UNBANKED

In 1999, the Social Security Administration began requiring direct deposit for payments, in large part to save money. But that posed a new problem: What if recipients did not have a bank account?

The Federal Reserve has conducted a series of studies in response, finding what many experts already suspected: The unbanked disliked banks, which they felt gouged customers for making mistakes.

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