New National Effort to Help Unbanked and Underbanked Adults: Bank On 2.0
By Jonathan Mintz, Guest Contributor on 10/16/2013 @ 01:30 PM
More than one in ten adults in America are disconnected from the mainstream banking system and pay out extra dollars for costly and unproductive fringe products and services as they struggle with their monthly finances. This startling truth– and the wasted energy and dollars spent compensating for this disconnect—has long posed a critical policy challenge for public and private dollars aimed at helping working adults achieve financial stability and growth. For decades, nonprofit leaders, national advocates, and more recently local governments have attempted numerous efforts, including through innovative outreach and financial institution partnerships, to forge more productive mainstream connections. In response to this crisis and all that has been learned from these assorted efforts, the JPMorgan Chase Foundation and the Cities for Financial Empowerment Fund (CFE Fund) have announced the start of a nation-wide approach to linking safe and affordable products and services from banks and credit unions across the country with local government delivery streams of programs and services.
The national program, Bank On 2.0, will build upon the success of the multi-city Bank On movement and other local banking access initiatives, leveraging the experience and expertise of movement leaders (including San Francisco’s Office of Financial Empowerment, the City of Seattle, CFED, National League of Cities, and so many others), bank and credit union partnerships, and federal regulators. Bank On 2.0 will create a unified, national approach to identifying both appropriate products and services as well as effective municipal delivery strategies to help reach millions of people in need across the country.
The Bank On 2.0 initiative is critical to advancing the mission of the CFE Fund, which is to help cities improve the finances of low-income residents by embedding financial empowerment strategies into municipal programs. Successful financial empowerment programs not only help those in need with their finances, but also deliver a “Supervitamin Effect” to host programs in cities, powerfully improving social service program outcomes.
As one example of this approach, New York City experimented with inserting a safe bank account into payment streams of its Summer Youth Employment Program, which provides New Yorkers between 14 and 24 with paid employment for up to seven weeks in July and August. Program registration of these young adults, so many of whom lacked a bank account, was an ideal opportunity both to leverage particularly safe and appropriate accounts and consumer uptake.
As planning begins for this exciting multi-year Bank On 2.0 national initiative, we will be inviting mayors, banking organizations, federal regulators, philanthropic partners, and regional and national associations to join us to develop and test the most effective national approach for connecting the under-banked to safe, affordable mainstream banking services. The CFE Fund will soon release funding opportunities for promising municipal pilots, as well.
For more information and to stay connected to the CFE Fund’s Bank On 2.0 initiative, email us at firstname.lastname@example.org. Check out our website at www.CFEfund.org for updates on all our CFE Fund programs, current job opportunities, and to sign up for our mailing list to receive “The Supervitamin Quarterly” e-newsletter.
Jonathan Mintz is Commissioner of the New York City Department of Consumer Affairs and President of the CFE Fund.
The Affordable Care Act & The Unbanked, Part II
By Lucy Mullany, Guest Contributor on 08/21/2013 @ 10:00 AM
EDITOR'S NOTE: This is the second blog in a two-part series on the Unbanked and the Uninsured. Special thanks to Lucy Mullany at IABG for sharing on the Assets & Opportunity Network blog.
In our first blog of this series we discussed the unique challenges facing unbanked households when they try to pay for health insurance.
An estimated 36% of currently uninsured households in our state have no checking or savings accounts and are effectively “unbanked.” The problem is that the vast majority of insurance companies require individuals to pay their monthly premiums via automatic withdrawal from a checking account. This means if you don’t have a checking account, you can’t get insurance.
In an effort to address this challenge, the Department of Health and Human Services released proposed rules that would require insurers to accept a menu of payment options, including paper checks, cashier's checks, money orders, and prepaid debit cards.
In response to these proposed rules, IABG submitted a letter in partnership with 78 other organizations engaged with CFED's Assets & Opportunity Network. The letter includes recommendations on how the Department and other state and federal agencies can ensure that a pathway to safe banking opportunities is a part of ACA implementation. The recommendations include:
- Deductions from Paychecks: Automatic withdrawals from payroll help facilitate on-time payment. Similar to retirement savings or social security deductions, payroll deductions for insurance purchased on the exchange will ensure regular on-time payments.
- Ability to Pay in Advance: If open enrollment in states across the country were aligned with tax time, consumers could pay for their premiums via their tax return. The Department of the Treasury should explore mechanisms for streamlining payments through resources consumers receive at tax time. Many Volunteer Income Tax Assistance (VITA) sites work with the unbanked population and can facilitate community outreach for this payment option.
- Use of Navigators: Navigators should be required to provide payment information to each consumer who is purchasing health insurance via the Marketplace. Navigators can be key ambassadors of this information. We recommend creating FAQs on payment options for this formerly uninsured population.
- Website Development: Each state will have either its own website or they will be referring people to the federal website to access the Marketplace. Payment information should be provided on the website and should be sent to consumers via email or traditional mail upon purchasing their insurance. Given that immigrants make up a significant percentage of the unbanked community, this information should be accessible in a variety of languages.
Pathway to Safe Banking
While we support efforts to ensure that the unbanked have access to health insurance through the marketplaces, we also strongly believe that DHS should use this as an opportunity to provide pathways to safe affordable banking. Being banked will facilitate on time payments which will ensure continuity of coverage and access to health care. While the alternative payments proposed by the Department are important to improve access to health care, they are costly and not a long term solution. IABG will continue to work with healthcare advocates to implement changes that will create a pathway to banking.
The Affordable Care Act & The Unbanked, Part I
By Lucy Mullany, Guest Contributor on 08/20/2013 @ 10:00 AM
EDITOR'S NOTE: This is the first in a two part blog series on the Unbanked and the Uninsured. Many thanks to Lucy Mullany of the Illinois Asset Building Group for permission to share this timely blog series.
When the Affordable Care Act (ACA) goes into effect this October, Illinois residents who don’t have a bank account could find themselves without access to new healthcare opportunities.
Under the Affordable Care Act, 957,440 Illinois residents are expected to qualify for tax subsidies that can be used to purchase insurance through new health care exchanges. However, an estimated 36% of uninsured households in our state have no checking or savings accounts and are effectively “unbanked”. The problem is that the vast majority of insurance companies require individuals to pay their monthly premiums via automatic withdrawal from a checking account. This means if you don’t have a checking account, you can’t get insurance.
As Illinois works to set up health exchanges, the question of how unbanked households will purchase insurance has largely been overlooked. In an effort to address this challenge, the Department of Health and Human Services released proposed rules that would require insurers to accept a menu of payment options, including:
- Paper Checks
- Cashier’s Checks
- Money Orders
- Prepaid debit cards
- Electronic funds transfer from a bank account
- Automatic deduction from a credit or debit card
IABG believes insurance companies should be required to accept alternative payment options in order to ensure that thousands of our residents are not denied health insurance as the ACA is implemented in Illinois. However, we also believe that we need to go further.
One in four Illinois households are either unbanked (with no checking or savings account) or underbanked (they may have a bank account, but still use alternative financial services like check cashers and payday loans). With individuals signing up for health insurance in communities across the state, this is a great opportunity to connect them with programs and services that help families become financially secure. These include community Volunteer Income Tax Assistance (VITA) programs, Bank On initiatives, and financial counseling services.
While existing programs are helping a percentage of households that need their services, with support from government leaders, they can leverage the implementation of the ACA to help even more residents safely connect to the financial mainstream.
IABG is working with other advocacy leaders engaged with CFED's Assets & Opportunity Network to develop recommendations on how the Department of Health & Human Services and other state and federal agencies can insure that a pathway to safe banking opportunities is a part of ACA implementation.
In part 2 of this blog series, we will share these recommendations and ask for your support in moving them forward. If you have feedback please contact Lucy Mullany.
Facing Challenges In The Health Insurance Marketplace
By Daniella Levine, Guest Contributor on 07/16/2013 @ 02:30 PM
EDITOR'S NOTE: This opinion piece originally appeared in the Miami Herald and you can read it here.
On Oct. 1, the federal government will open up a new health-insurance marketplace where an estimated 1.7 million Floridians will have new health-insurance options and financial assistance to help them purchase coverage.
However, many of the uninsured households in our state may face challenges purchasing coverage unless the marketplace adopts alternative payment methods. Many do not have checking or savings accounts and are effectively “unbanked.” The problem is that insurance companies often require individuals to pay their monthly premiums via automatic withdrawal from a checking account. No account, no insurance.
Federal officials at the Department of Health and Human Services have proposed requiring insurers to accept a menu of payment options, including cashier’s checks, money orders and prepaid debit cards so that families without checking accounts won’t lose the opportunity to purchase the insurance required by law.
Those proposed rules should become the law of the land.
But we shouldn’t stop there. We must also find ways to address the larger problems that prevent these households from joining the financial mainstream. More than one in five households in Miami are considered unbanked. An additional 21.4 percent are “underbanked,” meaning they may have a bank account, but still use alternative financial services like check cashers and payday loans. These numbers place Miami as the most unbanked and underbanked large city in the United States. Families have little opportunity to save for the future, build credit and turn their hard-earned cash into valuable assets.
We have witnessed firsthand the impact of programs and services that help families open bank accounts and achieve long-term financial security. Through the Prosperity Campaign, a flagship initiative of Catalyst Miami that has spread throughout the state, lower-wage individuals and families connect to quality healthcare programs and services, establish financial security and improve their quality of life. This past year, 845 people received financial literacy training, 2,831 were assisted with benefit enrollment and over 5,000 residents attended our free tax preparation sessions. These programs reach a mere handful of the households they could potentially help. Our government leaders need to play a stronger role in connecting residents to the financial mainstream by using public awareness campaigns to inform residents about the dangers of high-cost payday loans. They can also help bring together area banks, credit unions and community organizations to extend their services to the unbanked and underbanked residents of our community.
The gap in access to financial services is symptomatic of the wealth gap in our nation. If policymakers are to successfully increase health-insurance access, expanding opportunities to join the financial mainstream should be a key part of that effort.
Catalyst Miami is proud that its Prosperity Campaign has assisted many thousands and brought in millions in new revenue to our community. We will be joining efforts to promote use of the Affordable Care Act marketplace and increasing our financial counseling services to promote greater financial capability for our low and moderate income residents. Contact us at www.catalystmiami.org to see how we can assist you to increase your health and wealth.
Daniella Levine is President & CEO of Catalyst Miami.
Levere: FY14 Budget a "Strong Starting Point" for Rebuilding American Opportunity
By Andrea Levere on 04/11/2013 @ 10:00 AM
President Obama’s budget lays out a strong starting point for rebuilding American opportunity. He preserves our historic commitment to protect the nation’s most vulnerable households, reverses some of the most harmful impacts of sequestration, and calls for a sensible, balanced approach to reducing the federal deficit.
In particular, the President should be applauded for his commitment to the success of the Consumer Financial Protection Bureau, which in the short period of its existence has already made huge strides in protecting consumers against predatory financial products and empowering them to build savings and financial security.
The President’s budget also calls for sustaining the nation’s investments in education by increasing access to high-quality early childhood education, improving the nation’s high schools and making college more affordable and attainable, especially for low-income students. The budget also maintains a commitment to fund programs that have been vital to the efforts of low- and moderate-income families who have been striving to save and build wealth. These vital programs include the Community Development Block Grant, the Community Development Financial Institutions Fund, the Earned Income Tax Credit, the Child Tax Credit and the Assets for Independence program, which has helped more than 70,000 low-income families open special matched savings accounts to help them buy a home, launch a business or pay for school.
But the President’s budget could also do more to ensure that low- and moderate-income households have full access to the tools they need to achieve financial security. While the budget includes a laudable commitment to simplify the tax code to make it more fair, it should include as part of that commitment an effort to broaden tax incentives for savings for the low- and moderate-income households who now get virtually no benefit.
In addition, the budget should contain an explicit commitment to help households save, build wealth and improve their financial capability. As CFED’s 2013 Assets & Opportunity Scorecard found, as many as 44% of households in America lack the cash savings to survive three months at the federal poverty line in the event of a loss of income.
For example, the President did not request funds for Bank On USA, an innovative effort in multiple cities across the nation to connect households without bank accounts to the financial mainstream, as he has in his past budgets.
CFED looks forward to working with the President and Congress to improve the financial security of America’s households and expand economic opportunity for all families.”
New Report Finds Car Title Loans Cost Consumers $3.6 Billion Annually
By Sean Luechtefeld on 03/13/2013 @ 01:00 PM
All too often, we hear the horror stories of consumers trapped by payday lenders, looking for a way to make ends meet and ending up in a vicious cycle of high interest rates and dwindling paychecks.
Equally problematic but less dominant in discourse about predatory lending is the impact car-title lenders have on American consumers. A collaborative study released last week by the Center for Responsible Lending (CRL) and the Consumer Federation of America (CFA) finds that car-title loans—small-dollar loans secured by the title to one’s own vehicle—cost U.S. consumers $3.6 billion in interest annually on $1.6 billion in loans.
The report, which you can read in full here or in Executive Summary-form here, finds that there are nearly 8,000 auto-title lenders in 21 states. On average, borrowers who use these outlets renew their loans eight times, paying a total average interest amounting to $2,142 on $951 of credit. In other words, the APR on the average title loan is a whopping 225%.
Never has the need to broaden access to safe financial products been more pronounced. Whereas having access to a no- or low-cost checking or savings account may not be the silver bullet for solving predatory lending practices, so many consumers are forced into predatory outlets because they lack access to mainstream financial services, either due to a troubled history of banking or because they lack the information necessary to make sound decisions relating to how they access their money.
Programs like Bank On work to change reverse this trend by increasing access to both safe financial products and quality financial education. With the right tools, consumers can (re)enter the mainstream banking industry and access their money without paying egregious interest.
If you have a minute, I recommend checking out the joint CRL/CFA report. It brings to light another dark spot in the predatory lending field while providing a thoughtful reflection on how we can improve financial access for all Americans.
Six Steps that City Leaders Can Take to Increase Family Economic Security
By Kristin Lawton on 02/25/2013 @ 02:30 PM
EDITOR'S NOTE: We're happy to help promote National League of Cities' webinar this Thursday, which features CFED's Chief Program Officer, Ida Rademacher.
You're invited to a free, hour-long webinar, which will be held this Thursday, February 28, at 2:30 pm EST. The webinar will feature strategies described in a new report published by the Corporation for Enterprise Development (CFED) and the YEF Institute. The report, Taking the First Step: Six Ways to Start Building Financial Security and Opportunity at the Local Level, highlights innovative, low- or no-cost ideas for how city officials can get started in helping families achieve financial stability. These strategies include raising awareness about available services and consumer protections; increasing access to financial education and safe, affordable financial products; preventing foreclosures and predatory lending; and developing model human resource policies.
Webinar speakers will include:
- Sybongile Cook, Program Manager - Economic Development, Banking Bureau, Department of Insurance, Securities and Banking, District of Columbia
- The Honorable Ann M. Horton, Mayor Pro Tem, City of Bryan, Texas
- Ida Rademacher, Chief Program Officer, CFED
Speakers will discuss how the six strategies featured in the report have laid the foundation for robust, citywide financial empowerment agendas.
Is Your 401(k) Obsolete?
By Anne Kim on 02/11/2013 @ 11:45 AM
EDITOR'S NOTE: This post originally appeared on Washington Monthly's Ten Miles Square blog. Read it here.
New research by the firm HelloWallet finds that more than a quarter of Americans who have an employer-sponsored retirement plan are raiding these accounts for other uses.
According to HelloWallet’s report, Americans are withdrawing more than $70 billion a year from their retirement savings—and often paying big penalties to do so. On top of regular income taxes, early withdrawals are subject to a 10 percent additional tax penalty, which depending on the bracket, could eat up nearly half of a person’s withdrawal.
For many people, employer-sponsored retirement plans are the only mechanism “forcing” them to save. Yet the retirement-only focus of the current system isn’t versatile enough to meet people’s real needs—especially to cope with emergencies such as a job loss or a horrifically expensive car repair.
The depth and breadth of this ”leakage” from Americans’ retirement accounts means it’s time to rethink the kinds of savings accounts that all Americans should own. In particular, new ways to encourage emergency savings could help ensure that 401(k)s don’t continue to be an expensive, last-resort piggybank for so many Americans.
According to new data from CFED, 44 percent of American households don’t have the cash to survive three months at the federal poverty level if they suffer a loss of income. Among 401(k) accountholders who lack this cash cushion, HelloWallet found that nearly 1 in 3 have “breached” their retirement savings, versus just 3 percent of accountholders who have enough emergency savings put away.
While it’s easy to dismiss emergency savings as something every American “should” do—the same way people “should” get more exercise and skip the buffalo wings on Super Bowl Sunday—the reality is that too many Americans either don’t make enough money to save or lack the tools and capability to manage their resources optimally.
According to the FDIC, nearly 30 percent of Americans don’t own a savings account, while nearly a quarter of households rely on check cashers, pawn shops or other high-cost financial services that eat up people’s money and provide no avenues to save.
These issues are part of a much larger failure of our economic system to encourage savings, especially among those with lower incomes who need it most. Indeed, the predatory nature of so much of the financial marketplace in recent years—from payday loans to subprime mortgages to hidden credit card and 401(k) fees—has had the effect of stripping many Americans of much of the modest financial assets they’ve managed to accumulate.
Reversing these predatory practices is the mandate of the new Consumer Financial Protection Bureau (CFPB), created by the Dodd Frank financial reform law. The CFPB should be allowed to do its job, despite the efforts of some lawmakers who are fighting hard to weaken the agency. We also should be having a national conversation about big reforms, such as “stakeholder accounts” that can help all Americans become better lifetime savers.
But in the absence of political and budgetary appetite for large-scale solutions, policymakers should at least consider some incremental solutions in the short term. For example, here are a few small ideas to help stem the use (and abuse) of retirement savings and to tackle the emergency savings problem:
Encourage employer-linked emergency savings. Especially now that automatic enrollment in employer-sponsored retirement accounts is increasingly the norm, the workplace is one place where employees can count on being encouraged to save.
One idea, championed by David John of the Heritage Foundation, is to follow the lead of the United Kingdom, where “corporate platforms” allow employer-provided contributions to be used for both retirement and non-retirement purposes and where employees can have one-stop-shop access to all of their accounts.
The possibilities under this approach could include “auto-saving” into an emergency savings account or even an employer-sponsored plan to encourage investments in U.S. savings bonds (which are surprisingly liquid and even ideal for workers without traditional savings accounts).
Broaden access to disability and accident insurance. According to the Employee Benefits Research Institute, barely half of workers in medium and large businesses have accident or sickness insurance, while only a quarter of workers in small businesses have any form of short-term disability insurance at all.
While insurance isn’t a perfect substitute for savings, it can be a critical means of income “support” for someone who is sick or has an accident and is consequently unable to work. More employers should be encouraged to offer it, and more workers should be encouraged to participate.
Tweak the tax code. The tax code currently takes an all-or-nothing view toward savings, with retirement savings being the only savings to enjoy tax benefits. Why not, as the Urban Institute’s Gene Steuerle suggests, “scale” the benefit so that people get bigger breaks (or smaller penalties) the longer the money stays in a savings account? For example, someone who left their money untouched for 20 years would pay fewer penalties than someone who raided their savings after a few years.
Another idea, proposed by the New America Foundation, would be to build on the current Saver’s Credit, which currently provides a small federal tax credit for retirement savings by low-income workers. This proposal would dramatically expand the benefit by providing a refundable “match” and allowing it to apply to savings in shorter-term vehicles such as one-year certificates of deposit or U.S. savings bonds. This match would both beef up the emergency savings available for the workers who need it most and incentivize more savings as well.
A potential upcoming debate on tax reform might be the best chance for Congress to rethink how to encourage more savings and help Americans become more secure. If Congress can’t get the federal budget in order, it should at least help American households get on sounder footing.
First Look: FDIC Releases New Unbanked Data
By Ethan Geiling on 09/13/2012 @ 12:00 PM
The number of unbanked and underbanked Americans has grown slightly since 2009, according to new data released by the FDIC yesterday.
More than eight percent of U.S. households – or approximately 17 million adults – are unbanked, up from 7.6% in 2009.* The number of underbanked households rose to 20.1% - or approximately 51 million adults – which is slightly higher than the 18.2% of households in 2009. Overall, the combined number of unbanked and underbanked households jumped three percentage points from two years earlier.
Unbanked rates by geography
Although the unbanked rate appears to have increased and decreased in many states, the FDIC reports that the change is only statistically significant in three states: West Virginia, Wyoming and Minnesota. Because of changes to the survey methodology, underbanked rates from 2009 and 2011 are not directly comparable. However, the proportion of households using Alternative Financial Services did increase in eight states – Alabama, Nevada, Arkansas, Georgia, New Jersey, South Dakota, Vermont, and Rhode Island – and decreased in Alaska and the District of Columbia.
The FDIC looked at unbanked rates in the 71 largest Metropolitan Statistical Areas (MSAs). Of these 71, there was a statistically significant change in seven of them – the unbanked rate increased in five and decreased in two. The FDIC does not speculate about why rates may have changes in these cities.
Use of savings accounts
For the first time, the FDIC examined differences in checking and savings account usage. A large chunk of Americans (29.3%) do not have a savings account, which is seen as a major opportunity for financial institutions. Some interesting trends also emerge when you break down the data by different subgroups. About half of Black and Hispanic households do not have a savings account, compared to about one-quarter of Asian and white households. The majority (61.0%) of the lowest income households (those making less than $15,000) do not have a savings account, compared to less than 10% of households making $75,000 or more a year.
Future banking plans
The FDIC asked unbanked households whether they plan to open a bank account in the near future. The majority of households (61.7%) said that they are not likely to open an account. However, households that previously had a bank are more likely than never-banked households to report that they will open an account.
One of the most interesting findings from the FDIC’s report is the reasons that unbanked households want to open accounts. The top three reasons are:
The third reason – to save money for the future – is particularly noteworthy, and suggests that many low-income people have the desire to save, but lack the vehicle to do so.
There is far too much rich information in the FDIC’s report to cover in a blog post. However, next week Keith Ernst from the FDIC will be at CFED’s Assets Learning Conference presenting on findings during the Applied Research Forum Kick-Off. If you’re attending the ALC, we encourage you to attend this session to learn more!
Giving Context to Unbanked Data
By Sean Luechtefeld on 07/06/2012 @ 10:30 AM
It’s no surprise that CFED cares about financial access, and our work to promote Bank On is premised on the idea that building assets is infinitely easier with a bank account. The reason why is simple: having free or low-cost access to one’s own money is better than paying to use one’s own money.
Though the concept is simple, it’s sometimes hard to conceptualize just how dramatic the difference between having a bank account and not having a bank account can be. This is why I was so excited to find that my friends at The Sociological Cinema had posted a helpful infographic the other day providing some context about the difficulties of being unbanked. The infographic does an excellent job of visually representing the data, so I’m sharing it with readers here.
I hope you find this infographic helpful. There’s a ton more at The Sociological Cinema, so be sure to follow them on Facebook and check out their photo album on poverty issues.
Alternative Financial Services Aren’t Just for Low-income People
By Sean Luechtefeld on 06/12/2012 @ 02:30 PM
As the Bank On Site Administrator, one of my jobs is to keep up with news about Bank On and other financial access initiatives. Like everything else in my life, I do this with Google. Among my Alerts for ‘Bank On’ are notifications that “the bank on 14th Street was robbed” and “you can bank on the Celtics winning the Eastern Conference Finals.”
Imagine my surprise, then, when one Alert was about financial access but didn’t have to do with Bank On. In an article published on May 23, Spectrem’s Millionaire Corner highlights findings from a report that concludes that middle-income Millennials – and not just low-income individuals – rely on alternative financial services. For example, the rate of prepaid debit card use is as high for those making between $50,000 - 75,000 per year as it is for those making under $25,000 annually.
What struck me about this article – aside from the obvious omission of Bank On initiatives despite the article being titled “Millennials Bank on Alternative Financial Services” – was that no mention of alternatives to these “alternatives” was made. In other words, the Think Finance report and Millionaire Corner’s accompanying recap simply state that use of pawn shops, payday lenders and the like is ubiquitous among a wide swath of the population, but no discussion of how we might approach this problem exists. In fact, the data aren’t even presented as a problem at all.
But, a problem it is. That a sizeable barrier exists not only for low-income people but also for somewhere around half the population would seem like impetus enough to do something. Yet, inaction has been the path for policymakers who see the issue simply as a challenge among many rather than as one of the largest factors preventing people from building assets.
Luckily, there is good news: an alternative to predatory lending practices and products that keep people from accumulating wealth exists in the form of the Bank On USA initiative. The 70 or so state and local Bank On initiatives have proven immensely important, and their value should be expanded at a national level so financial access can be a reality for everyone in the United States, not just the people lucky enough to live in the select locales where enough support for the initiative exists.
Of course, as I see it, there’s another takeaway from the Millionaire Corner article: if you’re going to talk about financial access and put “bank on” in the headline, at least reference Bank On so I don’t get overly excited when sifting through my daily Google Alerts.
Why Bank On Programs Need Financial Institutions
By Michelle Nguyen on 04/11/2012 @ 11:30 AM
Last week, CFED released a report called Partnerships You Can Bank On: Sustainable Financial Institution Engagement in Bank On Programs, which, for the first time, investigates the sustainability of Bank On programs from the perspective of the financial institution.
Before we get into what that means, let’s step back a second. To unpack that sentence, we need to know what Bank On programs are, why they are important and why financial institutions are integral to these programs.
With approximately 8% unbanked households and another 18% classified as underbanked, there are about 30 million American households that are financially underserved. (Side note: Data on the number of un- and underbanked households at the city/county/metro level can be accessed through a new online data tool at JoinBankOn.org.) Financial access initiatives aimed at connecting unbanked consumers to mainstream banking products have proliferated in recent years, and Bank On programs have become the fastest growing strategy to address concerns about the number of households operating outside the financial mainstream. These are voluntary, public/private partnerships between local or state government, financial institutions, and community-based organizations, and the goal is to provide low-income un- and underbanked people with low-cost starter or “second chance” bank accounts and access to financial education.
Bank On programs are almost primarily locally based and operated, though, in recent years, several state and regional programs have formed. While local government and nonprofits provide marketing for the campaign, offer financial education, and connect unbanked consumers to the program, participating financial institutions agree to create affordable, mainstream checking accounts for unbanked consumers in their communities. However, a key assumption underlying the Bank On model is that financial institutions can serve these consumers in a way that is sustainable to their business operations. This assumption is critical to the success and longevity of the Bank On approach.
As more municipalities and states start Bank On programs, some facets of the model that have been key to its strong local appeal – local innovation and decision-making authority – are also becoming challenges to further scale and sustainability. In particular, as the volume of requests to develop unique, customized products and data tracking reports for multiple local markets increases, and as funding requests continue to mount, it is becoming increasingly challenging for national and regional financial institutions to negotiate, coordinate and manage their participation in Bank On.
The report explains in more detail about specific challenges that financial institutions face in terms of product design and program requests, along with the value of participating in the program. To read the full report, click here.
What Banks Could Learn From Fringe Financial Service Providers
By Sean Luechtefeld on 03/23/2012 @ 11:30 AM
Yesterday, I came across a New York Times article that I re-posted to JoinBankOn.org about the challenges facing those without bank accounts. The article was largely unremarkable for those of us working in the financial access field; it chronicles 45-year-old San Francisco resident Joey Macias, who, after a dispute with a major financial institution, turns to fringe financial service providers to access his paychecks and keeps any leftover cash at home.
While this story is all too familiar, what did strike me was the comment made by Anne Stuhldreher (longtime CFED friend and Senior Policy Fellow at New America Foundation), who was interviewed for the story. Anne’s argument is that financial institutions have a lot to learn from check cashers and other predatory lending outlets. First and foremost, “they’re convenient,” Anne says.
This got me thinking: what if your local Wells Fargo or Bank of America branch operated like a payday lender? To be sure, their fees shouldn’t be like those of the fringe financial service providers, and the terms and conditions of lending would need to be presented using transparent, easy-to-understand language. But, given those assumptions, what if?
For starters, payday lenders and check cashing outlets are everywhere, especially in low-income neighborhoods. The sheer number of outlets alone is a convenience that can really benefit a good portion of the population. In my community, for example, the national bank I use only has two branches within a 20-mile radius. Having more branches closer to home would be beneficial, especially for individuals who lack access to a car or who don’t live along good public transportation routes. Furthermore, as Anne points out, many of these outlets are open 24 hours a day. If banks and credit unions had 24-hour outlets, people could access their money before or after work without being forced to skip lunch breaks or take time off.
In addition to the convenience factor, banks might be in the position to offer check cashing services similar to those offered by payday lenders, but at much lower rates. The Times article indicates that major financial institutions are already providing credit to payday lenders; simply cutting out the middle person and offering those services directly to consumers would mitigate the cost to the consumer and the risk to the institution.
Ultimately, it might not be the perfect system; a zero percent unbanked rate is unlikely any time in the near future. But, payday lenders and check cashing outlets offer a valuable service, albeit one that is far too costly, especially for those most likely to use them. If these same services were offered with lower (or no) costs, it would be a win-win for consumers and service providers alike. Banks and credit unions seem ideally positioned to offer such products.
The Most Unbanked Places in America
By Ethan Geiling on 12/14/2011 @ 04:00 PM
A large number of Americans do not have or use traditional mainstream financial products, like checking or savings accounts.
An estimated 9 million American households are unbanked, meaning they do not have a checking or savings account. An additional 21 million households are underbanked, meaning they may have an account but instead rely on alternative financial services.
In November, CFED and partners released new data on the number of unbanked and underbanked households in every census tract, city/place, and county in the country. This is the first time data of this nature has ever been released. Click here to see a fact sheet on the most unbanked places in America.
The rate of unbanked and underbanked households varies significantly by location. In many cities – like Los Altos, CA – virtually every household has and fully uses a checking or savings account. However, in other cities – like East St. Louis, IL – more than half of households are either unbanked or underbanked.
The rate of being unbanked and underbanked varies by factors like income, race and ethnicity, educational attainment, age and citizenship. So it’s not surprising that there are so few unbanked and underbanked households in Los Altos, where more than three quarters of households have an income above $75,000 and more than 80% have college degrees. Compare this to the highly-unbanked East St. Louis, where the vast majority of households have incomes below $30,000, only about 10% have a college degree and 97.3% of households are Black or African-American. Black, Hispanic and Native American households are at much greater risk of being unbanked than White or Asian households.
Where are the all-time most unbanked places in America? Many of them are very small and rural towns. Of the top 100 unbanked “places” (cities, towns, or census designated places with more than 250 households), 36 are in Texas, 17 are in Mississippi and 10 are in Arizona. All of these places have less than 4,000 households. According to our estimates, Starr County, TX is the most unbanked county in the country -- 32.7% of households are unbanked and 28.2% of households are underbanked. Starr County is a small county of less than 15,000 households located on the U.S.–Mexico border.
The top 10 counties with the highest rates of unbanked households are all in Texas, Mississippi, Louisiana and South Dakota. Of counties with more than 100,000 households, Hidalgo County, TX has the highest proportion of unbanked households (21.6%), closely followed by Bronx County, NY (20.8%). Miami-Dade County, FL (14.4%) and Philadelphia County, PA (14.3%) also made the top 10 list.
Of large cities with more than 100,000 households, Miami and Detroit have the highest rates of unbanked households in the country – approximately 1 in 5 households are unbanked. In Miami, an additional 21.3% of households are underbanked and in Detroit, an additional 29.3% of households are underbanked. Five of the top 10 most unbanked large cities are in the south.
Although many of the most unbanked “places” in America are small and rural towns, the most unbanked census tracts are urban. Of 63,900 census tracts in the country, the tract with the highest unbanked rate is located in Savannah, GA; 42.4% of households in this tract are unbanked and 35.3% are underbanked. Compare this to the city of Savannah where 13.1% are unbanked and the Savannah metro area where 8.3% are unbanked. The second most unbanked tract in the U.S. is located in Cleveland, OH at 42.3% unbanked. Of the top 100 most unbanked census tracts in the country, 7 are in El Paso, TX, 6 are in Cleveland, OH and 5 are in Los Angeles, CA.
When you use the joinbankon.org interactive map to drill down to the census tract level within cities, much more detailed patterns begin to emerge. Looking at the Chicago metropolitan area, you can see that most of the neighborhoods downtown and on the north side are a lighter purple, indicating lower rates of unbanked. However, the south and west sides of Chicago, which have much higher poverty rates, are also much more unbanked, as indicated by the darker purple.
Even within neighborhoods unbanked rates can vary greatly from block to block. For example, the image below shows a detailed map of a neighborhood on the near north side of Chicago. Only 0.5% of households are unbanked and 7.4% of households are underbanked in the “gold coast” neighborhood, one of the wealthiest areas in the country. Just a few blocks away, near the former infamous Cabrini-Green housing projects, 21.2% of households are unbanked and 28.2% of households are underbanked.
The takeaway is that there are a significant number of households across the country that don’t use checking or savings accounts. These households would substantially benefit from accounts or other responsible financial products that meet their needs. A bank or credit union account can be the first step in saving, planning for the future, building credit and climbing the economic ladder.
Unfortunately, many financial institutions have turned their backs on low-income consumers, assuming there is no profit to be made. The growing number of Bank On programs across the country are helping to reach out to financially underserved consumers through locally-led coalitions. Prepaid cards and other financial products have also started to gain traction among the underbanked.
Hopefully this new in-depth data will help financial institutions, community organizations, government agencies, policymakers and other stakeholders better serve the unbanked and underbanked population.
Click here to access the unbanked data tool.
Highlights: Bank On Webinar
By Sean Luechtefeld on 12/05/2011 @ 10:00 AM
Yesterday, I had the honor of presenting on a webinar with some awesome colleagues, including Louisa Quittman (U.S. Department of the Treasury), Leigh Phillips (San Francisco Office of Financial Empowerment), Laura Fischer (National League of Cities) and Genevieve Melford (CFED). We had almost 300 attendees, many of whom provided thought-provoking questions that led to what I felt like was a fascinating conversation about the landscape of the financial access field.
If you weren’t able to listen in yesterday afternoon, that doesn’t mean you missed your only opportunity. The webinar was recorded, and the recording can be downloaded for your listening pleasure by clicking here. Included in the recording are not only the speakers’ remarks and the Q& A session, but also the PowerPoint and the demonstration of the new JoinBankOn.org.
Looking back, what stands out to me the most is how incredibly clear it is that the Bank On movement is exactly that – a movement. Laura mentioned how since she and her colleagues finished their first-ever Scan of the Bank On Field (which you can access here), nearly 20 new programs have started and at least a dozen more are in the works. That programs continue to coalesce from the ground up not only speaks to the recognition that financial access is no longer a conversation being had only on the fringes, but also that community-based, public-private partnerships really can be a force for good in helping bring all Americans into the mainstream economy.
Whether you listened to the webinar yesterday or you watch the recording in the coming days, I hope you’ll consider sending us feedback about this partnership by using the comments section below or by emailing email@example.com.
CFED, Partners Launch New JoinBankOn.org
By Sean Luechtefeld on 11/01/2011 @ 11:00 AM
This morning, CFED, with support from the U.S. Department of the Treasury and in partnership with the San Francisco Office of Financial Empowerment, the National League of Cities and the New America Foundation, launched a new-and-improved Bank On website, which we invite you to visit at JoinBankOn.org.
The new site includes many new and exciting features, including the ‘Research Your Community’ tool, an online application that allows users to create customized data reports about the un- and underbanked populations in thousands of communities across the country. In addition to the new features, JoinBankOn.org also features improved versions of some of the old site’s features, re-vamped based on intensive user feedback. These include tools that help users find programs in their communities, in-depth instructions about how to start a Bank On program, comprehensive resources provided by a diverse network of Bank On professionals and much more.
The new JoinBankOn.org was redesigned with the goal of helping communities strengthen the financial well-being of local residents through the adoption of the Bank On model. Since its successful inception in 2006 in the city of San Francisco, the Bank On model has gained support from state and local officials across the U.S. as a way of bringing the 30 million unbanked and underbanked households into the financial mainstream. These households, which are usually comprised of low-income workers, are hard-pressed to build savings and assets, find it difficult to respond to emergencies, and are more likely to have their money lost, stolen or eaten away by predatory lending and check-cashing outlets. In addition to connecting unbanked individuals to low-cost accounts, Bank On initiatives involve efforts to raise public awareness, provide targeted outreach and expand access to financial education. Bank On promotes collaboration among financial institutions, nonprofit organizations, educational institutions and government entities to deliver beneficial services to people who need them most in a responsive, low-cost and sustainable manner. There are currently dozens of communities that have implemented Bank On initiatives across the United States, and many more are planned.
The JoinBankOn.org website was developed by the Treasurer of the City and County of San Francisco to widely share the lessons learned from their innovative Bank On San Francisco initiative launched in 2006. According to San Francisco Treasurer José Cisneros, “JoinBankOn.org is the online home of our nationwide movement to ensure everyone has access to the financial mainstream. It provides communities with easy access to information and resources for starting or enhancing local Bank On programs.”
To stay informed on the latest news in the Bank On community and the larger financial access field, sign up to receive email updates. Or become a JoinBankOn.org member to participate in discussion forums and upload resources and news and events. Registration for JoinBankOn.org is free and simple. Click here to become a JoinBankOn.org member.
On behalf of all of our partners who made the new website possible, we are excited to introduce you to this new-and-improved digital resource. We also invite your feedback, as this website is premised on the idea that collaboration and community are the keys successfully expanding financial services for underbanked Americans everywhere. If you have questions or suggestions about the site, send us an email at firstname.lastname@example.org.
Pew Releases New Research on the Unbanked and Underbanked
By Ethan Geiling on 10/27/2011 @ 01:30 PM
A few days ago, the Pew Health Group released a new report on the unbanked and underbanked: Slipping Behind: Low-Income Los Angeles Households Drift Further from the Financial Mainstream. This is the second report of a two-part series, building on Pew’s 2010 report: Unbanked by Choice.
This is by far one of the most comprehensive research studies of the unbanked and underbanked conducted to date, and many of us at CFED have been looking forward to seeing the results of the study for some time.
The study analyzed 2,000 households in eight low-income neighborhoods around Los Angeles; 1,000 households had at least one bank account and 1,000 households had no bank accounts.
The report had three key findings:
1. Between 2009 and 2010, the ranks of the
unbanked increased, with more families leaving
banking than opening bank accounts.
This is discouraging, especially given that many large banks, including Bank of America, are planning on introducing new fees on previously free banking products, like checking accounts and debit cards. These new fees will likely further discourage the unbanked and underbanked from opening accounts – which is the exact opposite of what we should be doing.
Interestingly, Pew’s study noted that significantly less people in neighborhoods targeted by Bank On LA left the banking world. This suggests that Bank On programs are successful at encouraging people to open accounts.
2. Opening an account is only the beginning of a
beneficial banking relationship.
Pew’s study found that many people believe banks have more convenient locations, lower prices and better customer service than alternative financial service (AFS) providers (e.g. check cashers, payday lenders, etc.). However, many people use AFS providers anyway. Location, price and customer service are not always the most important considerations for underbanked consumers. Rather, it’s often more important to be able to access cash quickly and during convenient hours, and to use multiple services at once, like money orders and remittances. Financial institutions need to think more about the priorities of the un- and underbanked if they want them to keep them as customers.
3. Among the working poor, banking is associated
This confirms what other studies have shown and one of the key tenets of financial access initiatives. People with a bank account are much more likely to save. Pew’s study found that 88% of banked households had at least one savings account and 67% of banked households are saving. However, only 9% of unbanked households reported being able to save. This suggests that climbing the economic ladder often begins with a bank account.
Overall, Pew’s report suggests that there is still a lot of work that needs to happen to meet the needs of the unbanked and underbanked.
In the next few weeks, CFED and a group of partners will launch the revamped www.joinbankon.org website, which will feature a new unbanked data tool. The tool will estimate the number of unbanked and underbanked households at every census tract, city/town, county and metro area in the United States. We hope this tool will help communities across the country better understand the financial needs of their communities, so they can design effective and well-targeted strategies to meet these needs. Stay tuned!
Another Victory for the Paperless Payday
By Lauren Stebbins on 10/26/2010 @ 11:26 AM
In late September, the City Council for Austin, Texas unanimously passed a resolution to increase the percentage of city employees receiving their salary through electronic fund transfers or pre-paid debit cards to 98% by September 30, 2011. The resolution was introduced by Council Member Bill Spelman and cosponsored by Council Member Sheryl Cole. Over the next year, city managers will be working with city employees receiving their salary through paper checks to identify barriers preventing them from choosing electronic payment, develop procedures encouraging them to opt for electronic payment, and promote accessible bank accounts and other financial services. To carry out this project, the resolution directs the City to work with Bank On Central Texas, an initiative of United Way Capital Area and PeopleFund to provide un- and under-banked Texans access to mainstream financial products and services.
A paperless payday is a critical strategy for bringing people into the financial mainstream by connecting them with bank accounts and financial services that are not easily accessible for them. Access to these products and services helps them avoid the costly fees that come with money orders and check cashing institutions and build their assets.
Austin’s efforts are informed and inspired by the innovative work of the San Francisco Office of Financial Empowerment and their efforts to be the first city in the country to implement a plan to move all employees in the city of San Francisco – not only city employees but all workers employed in the private sector as well – to a paperless payday. More details about San Francisco’s efforts can be found on CFED’s Innovation Profile page highlighting the work of José Cisneros, Treasurer for the City and County of San Francisco; Leigh Phillips, Program Manager for San Francisco’s Office of Financial Empowerment; and Eugénie FitzGerald. Research from the design phase of San Francisco’s paperless payday initiative will be disseminated to leaders in other cities who are considering this type of strategy.
Going to Scale: Initiatives to Strengthen Financial Security are Spreading
By Sean Luechtefeld on 10/04/2010 @ 11:53 AM
EDITOR'S NOTE: This guest blog post comes to us by way of David Blatt, Director of the Oklahoma Policy Institute. To read the full text of this post and to explore the rest of David's blog, click here.
Last week, I had the pleasure of attending the 2010 Assets Learning Conference that brought together over 1,000 participants for three days of plenaries, workshops and sessions exploring approaches to building an economy in which all Americans, including those of limited means, are provided opportunities to achieve household financial security through savings, investment, and entrepreneurship.
As I noted in my blog post reporting on the opening plenary, a major theme of the conference was the notion of “scale” – the need and opportunity to take policies, programs, and products that have been introduced and tested in modest ways up to now and expand them to serve a much greater number and range of individuals and families. In session after session, I learned about innovative practices that are already working at the local level or in pilot programs and that community organizations, government agencies, and financial institutions are gearing up to expand. Here are just four of the policies, programs and products from the asset building field that seem poised for a larger impact:
- The Bank On Initiative: According to a 2008 FDIC survey, one in four U.S. households is unbanked or underbanked, which means they do not have a checking or savings account, or rely on high-cost alternative financial services. In 2006, the city of San Francisco, in partnership with banks, credit unions and non-profit organizations, launched the Bank on San Francisco project to make it easier for the unbanked to get into mainstream banking by providing consumers with starter accounts and financial education. Building on the success of the San Francisco program and with the active involvement of the National League of Cities, the program has spread to over a dozen cities. The Administration has now proposed $50 million for a national Bank on USA initiative “to promote access to affordable and appropriate financial services and basic consumer credit products for households lacking such access.”
- $ave USA Initiative. For many low-income families, the Earned Income Tax Credit (EITC), which can be worth over $5,000 to a two-child household, provides an annual lump-sum payment that can not only be used to spend on ongoing and one-time expenditures, but that can also be saved and invested. In New York City, the Office of Financial Empowerment launched the $ave NYC Account Program to provide opportunities for families to invest part of their EITC refund in savings. $ave NYC is a matched savings program operated at tax time that provides low-income households 50 cents of public match for every $1 of savings up to $1,000. An evaluation of the program found that 61 percent of program participants deposited over $500 to their $ave NYC account, despite having average households earnings of roughly $15,000. These findings confirm the growing body of evidence showing that with the right incentives and program design, low-income families can and do save. In July, the federal government announced its financial support for the program in New York and three other cities, including Tulsa.
- Small Dollar Loan Program: Many low- and moderate-income families regularly depend on payday loans, which have APRs that can exceed 450 percent and tend to be extremely short-term, to try to make ends meet. Payday loans often lead to patterns of frequent, high-cost borrowing which perpetuate a cycle of debt and economic insecurity. In 2008, the FDIC launched the Small-Dollar Loan Pilot Program in partnership with 31 banks. All the banks committed to offering borrowers closed-end installment loans up to $2,500 with payment periods that extended beyond a single paycheck and APRs below 36 percent. Some banks coupled their loan product with financial education classes and resources. According to a study of the program, “most pilot bankers in the pilot indicated that small dollar loans were a useful business strategy for developing or retaining long-term relationships with consumers.” The FDIC intends to use the lessons from the pilot to work with the public, private, and non-profit sectors on strategies to expand the supply of lower-cost small-dollar loans.
- The Saver’s Credit. At the national policy level, the Obama Administration is promoting a broad set of tax policy changes that encourage and facilitate savings. One proposal that is strongly backed by CFED and a coalition of corporate and non-profit supporters would expand the Saver’s Credit, which currently is claimed by less than 6 million individuals. Under the Administration’s proposal, the Saver’s Credit would provide a flat 50 percent match on deposits into qualified retirement accounts up to $1,000 per year for joint filers, automatically deposit this match directly into a designated account, and extend this benefit to households earning less than $65,000. If enacted, up to 50 million Americans would be able to use the Saver’s Credit to build up a nest egg for retirement and other eligible uses.
These four examples are from an exhaustive list, but they are representative of a field in which a growing number of partnerships are bringing together government, non-profits, and the private sector to help build assets and strengthen financial security. The Oklahoma Asset Building Coalition is eager to be an active part of this work here in Oklahoma; whether or not you’ve been a part of the regional meetings that the Coalition is hosting around the state, we hope you’ll join our effort and help us ensure that Oklahoma contributes to bringing the assets movement to scale.
New Tools to Help Meet the Needs of the Un- and Underbanked
By Sean Luechtefeld on 09/29/2010 @ 02:03 PM
EDITOR'S NOTE: This blog post, which reflects on the 2010 Assets Learning Conference and highlights a new AARP publication, was provided to us by Donna Ortega of the AARP Foundation. innovation@cfed and the ALC Team send special thanks to Donna for her contribution. If you have questions or comments, please use the comments feature below to share.
At yesterday’s “Bank On Initiatives” session at the Assets Learning Conference, Bank On programs were in the spotlight. Modeled on the successful Bank On San Francisco effort launched in 2005, local Bank Ons bring together governments, financial institutions, and nonprofits to help consumers access low-cost, safe, financial accounts and high-quality financial education, and are part of a growing movement striving to better meet the needs of the unbanked (those who have neither a checking or savings account) and underbanked (those who have an account but who still rely to some extent on alternative financial service providers such as check cashers, payday lenders, and auto-title loans).
The panel, facilitated by Wynne Lum from Bank of America, included Anne Stuhldreher with New America Foundation, Heidi Goldberg with National League of Cities, and Matt Pippin with the U.S. Treasury Department, who shared the highlights from the last few years of Bank On growth and outlined the goals of the Bank On USA initiative. There are now close to 70 Bank Ons around the country, and 25 cities have fully launched programs. The importance of relationship-building and making the business case for financial institution involvement were big themes in the session and highlighted the particular promise of Bank Ons: beyond getting people into appropriate products, Bank Ons are also about “getting better products into the marketplace.” As the movement matures and new Bank Ons come on board, knowledge-sharing and evaluation to show the impact of the programs’ effectiveness will be key. JoinBankOn.org is the home for those looking to start or learn more about Bank On programs and National League of Cities will release a toolkit for starting a Bank On in the next few months.
Bank Ons and other programs hoping to better serve the unbanked and underbanked have a new resource to help them identify the needs and motivations of this population. Today, the AARP Public Policy Institute and AARP Foundation together released “A Portrait of Older Underbanked and Unbanked Consumers: Findings from a National Survey,” a new report examining the 45+ un- and underbanked population and their consumer financial behavior. Based on data from the 2008 Center for Financial Services Innovation (CFSI) Underbanked Consumer Study, this new report breaks out CFSI survey results across ethnicity, income, and employment status for the 45-64 and 65+ un- and underbanked population, and makes policy and practice recommendations for policymakers, nonprofits and funders.
We know that consumers at all ages need access to safe places to save, manage their money, and access credit on fair terms. Bank On programs are one strategy that holds promise in helping to move more Americans into the financial mainstream. But we also know that banking accounts are not the only solution. In the comments, let us know what you think is working to meet the needs of the un- and underbanked.
Donna V.S. Ortega manages the AARP Foundation's national Financial Innovation work—an effort to increase access to asset-building financial services for low-income older Americans. Formerly, Donna served as Associate Director of Capital Area Asset Builders (CAAB). She Tweets regularly about asset-building, financial services for the un- and underbanked, economic security, consumer protection, and financial literacy as @AARPInnovation.