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
Add to Briefcase
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 »
CHINA OBJECTS
U.S. Destroyer Sails Close to Artificial Chinese Island
29 minutes ago
THE DETAILS

A Navy destroyer sailed within 12 miles of an artificial island built by China in the South China Sea, one of several such islands at the center of territorial disputes with other nearby nations. The U.S. called it a "freedom of navigation exercise." Chinese Defense Ministry spokesman Ren Guoqiang "said China had lodged stern representations to the U.S over the patrol and that such moves were not conducive to peace and stability in the South China Sea."

Source:
MINIMUM 2 PERCENT GDP
Trump Tells NATO Countries To Pay Up
1 hours ago
BREAKING
OVER LEAKS
U.K. Police No Longer Sharing Manchester Info With U.S.
2 hours ago
THE LATEST
MANAFORT AND FLYNN
Russians Discussed Influencing Trump Through Aides
3 hours ago
THE DETAILS

"American spies collected information last summer revealing that senior Russian intelligence and political officials were discussing how to exert influence over Donald J. Trump through his advisers." The conversations centered around Paul Manafort, who was campaign chairman at the time, and Michael Flynn, former national security adviser and then a close campaign surrogate. Both men have been tied heavily with Russia and Flynn is currently at the center of the FBI investigation into possible collusion between the Trump campaign and Russia.

Source:
DAY BEFORE ELECTION
Montana House Candidate Charged With Assault
3 hours ago
THE DETAILS

Greg Gianforte, the Montana Republican candidate for the state's lone House seat, was cited for misdemeanor assault Wednesday night after he allegedly body-slammed Guardian reporter Ben Jacobs. Jacobs entered a room in which Gianforte was preparing to give an interview to Fox News, and asked Gianforte about the recently released CBO score on health care legislation, at which point, according to an account from Fox News's Alicia Acuna, Gianforte put both hands around Jacobs's neck and slammed him to the ground. The Gallatin County Sheriff’s Office put out a statement saying there was probable cause for the citation but not the injuries required for it to be considered a felony. Gianforte's aide put out an erroneous statement saying Jacobs grabbed Gianforte by the wrist after aggressively putting a recorder in Gianforte's face.

Source:
×
×

Welcome to National Journal!

You are currently accessing National Journal from IP access. Please login to access this feature. If you have any questions, please contact your Dedicated Advisor.

Login