Financial Services for LowerIncome Consumers

About This Presentation

Title:

Financial Services for LowerIncome Consumers

Description:

Woodstock Institute December 2002. www.woodstockinst.org ... Public Policy and Advocacy Groups (Woodstock Institute, Legal Assistance Foundation) ... – PowerPoint PPT presentation

Number of Views:48

Avg rating:3.0/5.0

Slides: 24

Provided by: marvawi

Category:

more less

Transcript and Presenter's Notes

Title: Financial Services for LowerIncome Consumers

1
Financial Services for Lower-Income Consumers
Illinois Economic Development Policy Conference
Presented by Marva E. Williams Woodstock
Institute December 2002
www.woodstockinst.org
2
Woodstock Institute

Founded in 1973
Works locally and nationally to promote sound
community
reinvestment and economic development in
lower-income and minority communities
Collaborates with community organizations,
financial institutions, foundations,
government agencies, and others to promote its
goals
Engages in applied research, policy analysis,
technical assistance, public education, and
program design and evaluation
Areas of expertise CRA and fair lending
policies, financial and insurance services, small
business lending, community development financial
institutions, and economic development strategies

3
Chicago CRA Coalition

Dozens of Chicago-area community groups
Engages banks and regulators to increase bank
lending, services and investments in under-served
communities
Negotiates bank agreements
Comments on reinvestment policy

4
Asset Building Program Areas

Community Development Finance
Lifeline Banking
Predatory Loan Reform

5
Recent Accomplishments

Reform Predatory Lending
Advocate Financial Services for Lower-Income
Consumers
Promote Community Development Finance

6
Reform Predatory Lending

Passage of strong anti-predatory mortgage lending
and payday lending regulations in Illinois
Ended payday loan partnership of Brickyard Bank
Protested the proposed acquisition of Bank of
Kenney by payday lender
Monitored implementation of new regulations
Developed alternative payday and subprime loan
products

7
Advocate Financial Services for Lower-Income
Consumers

Examined whether mainstream credit unions service
lower-income consumers
Released survey of lowest cost checking account
product(s) of 75 Chicago area banks

8
Promote Community Development Finance

Agreements with three major financial
institutions
Advocated for an increase in state and federal
resources for community development financial
institutions (CDFIs)
Proposed strategies to strengthen the Home
Mortgage Disclosure Act (HMDA) and Community
Reinvestment Act (CRA)
Published 17th edition of the Community Lending
Fact Book

9
The Credit Path The Path of Opportunity
Source Alternatives Federal Credit Union Annual
Report, 2000.
10
The unbanked

22 million unbanked households in U.S.
40 of lower-income families do not have
checking account
15 of working poor are unbanked

11
Disadvantages of being unbanked

Do not have access to credit and savings tools
Funds do not earn interest
Funds can be lost or stolen
Do not develop a credit history
Can not benefit from direct deposit or EFT

12
Cost of Being Unbanked

Unbanked incur greater expenses cashing checks
and paying bills than account holders.
Consumers who rely on check cashers pay 86-500 a
year compared to 30-60 for account holders.

13
Why are people unbanked?

Inconvenient bank hours and locations
Credit checks
High minimum balances, initial deposits, and
fees
Financial/technological literacy
Trust

14
Recommendations

Appropriate accounts
Effective marketing
Good program management
Program sustainability
Lifeline banking policies

15
Payday Lending

Loans for small amounts made by check cashers at
extremely high interest rates with an initial
term of approximately two weeks
The payday loan industry has grown tremendously
in the last three years
Payday lenders now outnumber state-chartered
banks in Illinois

16
Cost of Payday Loans

Payday lenders charge extremely high interest
rates
In Illinois, the cost of a payday loan is
typically 20 percent of the amount borrowed or an
average annual percentage rate (APR) of
521percent
Credit card cash advance averages an APR of 36
percent and a small loan from a credit union has
an average APR of 16.5 percent
Payday installment loans fall outside of new
Illinois payday loan regulations

17
Egan Campaign for Payday Loan Reform

Formed in 1999 by the late Monsignor John Egan
Goal is to reform payday lending in Illinois
Worked with Illinois policymakers to affect
improved payday regulation in August 2001
The Campaign has 150 members from across the
State of Illinois

18
Solutions

Consumer education
Payday loan alternatives
Illinois Short Term Loan Act

19
Illinois Short Term Loan Act

Limits fees
Restricts the number of rollovers (2 per loan)
Requires a 30-day cooling off period between
loans
Promotes debt management services by requiring
lenders to give borrowers notice of available
programs

20
Predatory Lending

Abusive mortgage loans that include exorbitant
and often hidden fees excessively high interest
rates and practices such as restrictive
prepayment penalties
Predatory lenders often target elderly homeowners
in minority and lower-income communities
In Chicago from 1993 to 2001, foreclosures of
subprime loans increased by 486 while
foreclosures of prime loans increased by 3

21
Coalition Against Predatory Lending

Grassroots Organizers (SWOP, NTIC)
Public Policy and Advocacy Groups (Woodstock
Institute, Legal Assistance Foundation)
Community Lenders (NHS)

22
Illinois Regulations

Illinois approved regulation of high cost loans
in April 2001
Covers state regulated financial institutions
Defines set of high cost loans for which certain
practices are restricted high prepayment
penalties, single premium credit life insurance,
lender must consider borrowers ability to repay
Regulations enforced by Illinois Office of Banks
and Real Estate and Department of Financial
Institutions