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 »
Obama: Michelle Will Never Run for Office
17 minutes ago
North Dakota Pipeline Protests Turn Violent
2 hours ago

The protest over the construction of the Dakota Access Pipeline turned violent overnight as the police and National Guard sought to remove the protesters, surrounding them with assault vehicles and officers in riot gear. The law enforcement officers used pepper spray and fired bean bags for more than six hours. In response, the protesters "lit debris on fire and threw Molotov cocktails in retreat." One woman pulled out a gun and fired at officers, narrowly missing before being arrested. The protesters claim the pipeline would be constructed on land belonging to the Standing Rock Sioux Tribe.

House Leadership Elections Slated for Nov. 15
2 hours ago

The House has scheduled leadership votes for Nov. 15, the day after members return from their election recess. "Since mid-September, members of the House Freedom Caucus have weighed whether they should ask leadership to push back the elections so they can see how House Speaker Paul Ryan performs at the end of the year," but leaders don't seem inclined to grant their request.

Feds Announce Rapid GDP Growth in Q3
2 hours ago

Gross domestic product "expanded at a 2.9% annual clip from July through September. That’s a marked improvement from the first half of the year when the U.S. grew just barely over 1%." The robust numbers make it more likely that the Federal Reserve hikes interest rates at its next meeting.

Oregon Militiamen Found Not Guilty
2 hours ago

"A federal jury on Thursday found Ammon Bundy, his brother Ryan Bundy and five co-defendants not guilty of conspiring to prevent federal employees from doing their jobs through intimidation, threat or force during the 41-day occupation of the Malheur National Wildlife Refuge. The Bundy brothers and occupiers Jeff Banta and David Fry also were found not guilty of having guns in a federal facility." In a strange "coda" to the decision, Bundy's attorney Marcus Mumford was tackled and tasered by marshals in the courtroom as he argued that Bundy should be free to go.


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.