California Bank & Trust, which opened in the Ravenswood 101 shopping center in 2002, is set to close Aug. 26, according to a bank spokesman. But local nonprofit leaders aren't willing to accept the decision.
"This is the beginning of the discussion. This isn't a done deal," said Leah Simon-Weisberg, managing attorney for Community Legal Services in East Palo Alto.
Steve Borg, spokesman for California Bank, said the decision to close the branch was difficult, but there weren't enough loans and deposits.
California Bank isn't a retail bank — it is a business and professions bank that primarily serves large geographical areas rather than having many outlets, he said. The bank does offer services to individuals, including free checking for seniors ages 55 and older, however, he said.
The East Palo Alto branch was never able to attract business from its most profitable neighbors at Ravenswood 101 — the "big box" stores such as IKEA, Sports Authority and Home Depot, Borg said. Borg said the bank made several overtures to the stores, but to no avail.
Those stores bank with larger institutions as dictated by their corporate headquarters, managers at several stores conceded.
The City of East Palo Alto also does not use California Bank, Mayor Carlos Romero said. Bank officials approached the city manager and director of finance about making deposits in the bank, but the city was bound by a fiduciary responsibility to Wells Fargo Bank at the time and was "in no position to just move its banking," he said. The city moves about $30 million through checks, but it doesn't maintain a large balance, he said.
Romero said the city will be at a point where it could move its banking to another institution in about a year and had mentioned that to California Bank, "but I think they were at a point where they couldn't wait that long," he said. Moving to the local bank also wouldn't be guaranteed. The city would put out a request for proposals for financial services, and California Bank could apply.
The closure is particularly frustrating for anti-predatory-lending advocates who have seen the city devastated by the residential-foreclosure crisis. Even before the bank announced its closure, Community Legal Services and other groups were working on ways to increase financial education and decrease "payday" and predatory lending. Their program, called Bank on EPA and funded by the Silicon Valley Community Foundation, is still in development, but the program model is being instituted in poor, multi-ethnic communities elsewhere, such as San Jose.
Simon-Weisberg said the plan is to sign up 2,000 more people with savings accounts this year. Those accounts could support the bank, if it were able to stay open long enough.
She also said Community Legal Services would look into how to get the city to commit to investing in a bank if it wants a bank to invest in the community. The group could also talk to the FDIC, the federal government's independent bank regulator.
Having a bank in the community encourages people to move in and build community, she said.
Building relationships with a bank also means "you're not going to be susceptible to a stranger who knocks on the door," she said.
Prior to the opening of the California Bank & Trust, residents were reliant on payday loans with annual percentage rates of up to 400 percent. And predatory lenders lured financially naïve buyers into loans with enormous balloon payments — some as much as $7,000 a month on a $1,000 per month income, she said.
As banks consolidate, Simon-Weisberg said she fears a practice known as "redlining" will return. Redlining occurred historically when bankers drew a red line on a map to indicate "risky" communities where a bank would not lend, regardless of whether individuals in the community could qualify for a loan, she said.
"They would deny people. People wouldn't be able to fix up their homes. It's keeping a community poor if they can't buy or sell their homes," she said.
Kevin Stein, who helped draw California Bank into East Palo Alto 10 years ago, said at the time that East Palo Alto was the largest city in the country with no bank branch at all.
"East Palo Alto has been under-banked for decades, and that is a reflection of redlining concerns," said Stein, associate director of the California Reinvestment Coalition.
Preeti Vissa, community reinvestment director for The Greenlining Institute, agreed.
Not having a local bank "is re-redlining a community because it's forcing residents who still need banking services to go to everyone who's left," including those who charge exorbitant fees or a hefty percentage for cash advances, she said.
She also worries about significant drops in home, small business and Small Business Administration (SBA) lending. Small Business Administration loans alone have dropped by 50 percent in underserved communities, she said.
"It's a cycle of a dearth of resources," she added.
Without having access to financing, a community has no chance of rebuilding its economy, she said.
"Mountain View, Palo Alto and San Mateo are heavily invested-in areas. It's absolutely two different worlds. Financial investment plays a large part in the financial lives of a community. A local bank provides opportunities to build wealth and assets and contributes to financial empowerment and financial literacy," Vissa said.
California Bank is the second financial institution the city has lost since last year. In September 2010, Community Trust Credit Union, located on Bay Road, closed its doors, a victim of the housing implosion, he said. The regional credit union was set up by the nonprofit financial-literacy organization Northern California Urban Development.
On Tuesday, some East Palo Alto residents outside California Bank said they would drive the 8.5 miles to Mountain View; others said they are closing their accounts.
"It's going to leave East Palo Alto in a bad fix," Candy Maria Hunter said. "It's part of the community. We feel welcome here. It discourages people if they don't have a bank in their community," she said.
At Country Time Market on University Avenue, Aymen Silmi, who works the check-cashing concession, said customers are coming to cash their payroll checks because the bank is closing.
"That's good news for me," he said.