That Personal Touch Helps Americans Save Money

A handful of nonprofits, credit unions, and start-ups are trying new and different ways for customers to establish good credit.

Customers use an ATM at a Bank of America branch office on April 17, 2013 in San Francisco, California.
National Journal
Amy Sullivan
Dec. 6, 2013, 6:30 a.m.

As 2013 draws to a close, the Next Eco­nomy pro­ject is tak­ing a look at some of the most in­nov­at­ive pro­grams aimed at build­ing and sup­port­ing a strong middle class that we’ve pro­filed this year. What makes the best pro­grams work? And what les­sons can we draw from their suc­cess? Today we start with ini­ti­at­ives to pro­mote as­set-build­ing.

It’s a tricky busi­ness try­ing to fig­ure out why some U.S. fam­il­ies move up the eco­nom­ic lad­der and some don’t. But it’s be­come in­creas­ingly clear that hav­ing wealth plays a key role. Fam­il­ies with ac­cu­mu­lated sav­ings and oth­er as­sets are bet­ter able to weath­er peri­ods of un­em­ploy­ment or health crises, and they have a great­er meas­ure of eco­nom­ic se­cur­ity. A re­cent re­port from the Pew Eco­nom­ic Mo­bil­ity Pro­ject found that these fam­il­ies who en­joy a cush­ion of wealth are the most likely to be up­wardly mo­bile.

But an­ti­poverty ad­voc­ates are learn­ing that it’s not enough to en­cour­age low-in­come Amer­ic­ans to open bank ac­counts and in­crease their sav­ings. In­di­vidu­als also need to es­tab­lish good cred­it rat­ings in or­der to qual­i­fy for the kinds of fin­an­cial re­sources that help build eco­nom­ic se­cur­ity, such as mort­gages, car loans, or small-busi­ness loans.

As ac­cess to tra­di­tion­al forms of loans has tightened in the years fol­low­ing the fin­an­cial crisis, in­de­pend­ent ven­tures have stepped in to provide both cap­it­al and cred­it-build­ing op­por­tun­it­ies for strug­gling Amer­ic­ans. Maurice Lim Miller, who foun­ded the Fam­ily In­de­pend­ence Ini­ti­at­ive in the San Fran­cisco Bay Area, ex­plains that what many low-in­come in­di­vidu­als need is an al­tern­at­ive way of vouch­ing for their fin­an­cial re­li­ab­il­ity. “A lot of these fam­il­ies don’t have a cred­it rat­ing,” Miller says. “But what we can do is give a car deal­er a cred­it score that’s sim­il­ar, it’s a proxy for that whole thing. We’re col­lect­ing the data to show that these fam­il­ies are re­li­able, they’re re­source­ful, you can count on them — they just don’t hap­pen to have a cred­it rat­ing.”

Through the Next Eco­nomy pro­ject, we’ve found cred­it-build­ing ef­forts as var­ied as a cred­it uni­on that caters to Lati­nos, a non­profit that sets up lend­ing circles for low-in­come im­mig­rants, and even for-profit on­line lenders that provide a path­way to low-in­terest loans.

We’ve also dis­covered that many of the most ef­fect­ive pro­grams to help Amer­ic­ans gain eco­nom­ic se­cur­ity do so by tak­ing a very per­son­al ap­proach — provid­ing ser­vices in cli­ents’ nat­ive lan­guage, provid­ing peer sup­port and ac­count­ab­il­ity for good fin­an­cial prac­tices, or work­ing dir­ectly with homeown­ers to struc­ture mort­gage pay­ments that can al­low them to keep their homes. It’s far-re­moved from the ex­per­i­ence of be­ing a face­less num­ber while banks pass around your mort­gage like a game of hot potato.

These are our fa­vor­ite as­set-build­ing ini­ti­at­ives for 2013:

  • Mis­sion As­set Fund. This Bay Area non­profit sets up lend­ing circles, primar­ily for low-in­come im­mig­rants, that provide no-in­terest, no-fee loans. After five years and ap­prox­im­ately $2 mil­lion shared through 1900 loans, MAF boasts an astound­ing re­pay­ment rate of nearly 99 per­cent. Par­ti­cip­a­tion in a lend­ing circle raises an av­er­age cli­ent’s cred­it score by 168 points and re­duces their debts by $1,000. When MAF launched, half of its tar­get house­holds in San Fran­cisco’s Mis­sion Dis­trict had no bank or sav­ings ac­count, and nearly as many lacked any kind of cred­it rat­ing.
  • Oak­land’s Pre­paid Deb­it Card. The city of Oak­land of­fers a mu­ni­cip­al iden­ti­fic­a­tion card to res­id­ents, and this year it ad­ded a func­tion so that the ID card can be used as a pre­paid deb­it card as well. Res­id­ents can dir­ect-de­pos­it paychecks to the card, with­draw cash from ATMs, and shop with it as they would any oth­er pre­paid card. The new ser­vice is in­ten­ded to broaden fin­an­cial op­tions for low-wage work­ers bey­ond check-cash­ing stores and pay­day lenders, which can charge bur­den­some fees and in­terest rates.
  • On­line Lower-In­terest Lenders. Also look­ing to provide an al­tern­at­ive to pay­day lenders are a group of new start-ups in­clud­ing Spotloan, Len­dUp, and Fair­Loan. A typ­ic­al pay­day loan of $300, due in two weeks, car­ries a $45 in­terest fee. These new lenders are us­ing data min­ing and ana­lys­is to identi­fy re­li­able bor­row­ers and cre­ate loan struc­tures that re­ward re­spons­ible bor­row­ing. For ex­ample, a 30-day, $250 loan from Len­dUp car­ries a fee of $44. If a bor­row­er re­pays on time or early, they can bor­row again at lower rates. Over time, Len­dUp aims to trans­ition re­spons­ible bor­row­ers in­to a 2 per­cent monthly in­terest rate loan that can be re­por­ted to a cred­it uni­on or a bank, es­tab­lish­ing a cred­it his­tory.
  • Latino Com­munity Cred­it Uni­on. This cred­it uni­on with 10 branches in North Car­o­lina tar­gets Latino im­mig­rants and provides all ser­vices in both Span­ish and Eng­lish. It’s also one of the fast­est-grow­ing and most fin­an­cially stable cred­it uni­ons in the coun­try. Its 54,000 mem­bers have a lower de­lin­quency rate than the in­dustry av­er­age, des­pite the fact that the cred­it uni­on takes on mem­bers who have pre­vi­ously been un­banked and it provides loans to bor­row­ers with no cred­it his­tory at no ex­tra cost.
  • Mort­gage Res­ol­u­tion Fund. A part­ner­ship between four na­tion­al hous­ing non­profits, MRF aims to pre­vent fore­clos­ures by buy­ing bundles of de­lin­quent mort­gage notes and work­ing with homeown­ers to either modi­fy the loans or help fam­il­ies re­lo­cate. In many cases, they try to ad­just loan pay­ments to re­flect the ac­tu­al value of a bor­row­er’s house in­stead of the in­flated val­ues many were as­sessed at be­fore the hous­ing bubble burst. Since 2011, MRF has pur­chased more than 1,000 de­lin­quent mort­gages in dis­tressed Ohio and Illinois neigh­bor­hoods.

Up­com­ing in­stall­ments will look at ini­ti­at­ives in edu­ca­tion, eco­nom­ic de­vel­op­ment, and pro­mot­ing up­ward mo­bil­ity.

What We're Following See More »
SEVEN-POINT LEAD IN A FOUR-WAY
Quinnipiac Has Clinton Over 50%
2 hours ago
THE LATEST

Hillary Clinton leads Donald Trump 51%-41% in a new Quinnipiac poll released today. Her lead shrinks to seven points when the third-party candidates are included. In that scenario, she leads 45%-38%, with Gary Johnson pulling 10% and Jill Stein at 4%.

Source:
PROCEDURES NOT FOLLOWED
Trump Not on Ballot in Minnesota
3 hours ago
THE LATEST
MIGHT STILL ACCEPT FOREIGN AND CORPORATE MONEY
Chelsea to Stay on Board of Clinton Foundation
4 hours ago
THE LATEST

Is the Clinton family backtracking on some of its promises to insulate the White House from the Clinton Foundation? Opposition researchers will certainly try to portray it that way. A foundation spokesman said yesterday that Chelsea Clinton will stay on its board, and that the "foundation’s largest project, the Clinton Health Access Initiative, might continue to accept foreign government and corporate funding."

Source:
INTERCEPT IN MIDDLE EAST
Navy Calls Iranian Ships’ Actions Dangerous, Unprofessional
5 hours ago
THE LATEST

"Four Iranian ships made reckless maneuvers close to a U.S. warship this week, the Pentagon said Thursday, in an incident that officials said could have led to dangerous escalation." The four Iranian vessels engaged in a "high-speed intercept" of a U.S. destroyer in the Strait of Hormuz. A Navy spokesman said the Iranina actions "created a dangerous, harassing situation that could have led to further escalation including additional defensive measures" by the destroyer.

Source:
$300 SAVINGS CARD
Under Pressure, EpiPen Maker Drops Prices
5 hours ago
THE LATEST

Amid public outcry and the threat of investigation by the Senate Judiciary Committee, Mylan has agreed to effectively drop the price of EpiPens. "The company, which did not lower the drug's list price, said it would reduce the patient cost of EpiPen through the use of a savings card, which will cover up to $300 of EpiPen 2-Pak."

Source:
×