Going Paperless...

1
Serving the Underserved The UnBanked, UnderBanked,
and UnBankable Presented by John Annaloro,
President/CEO WCUL

2
Debunking Myths
Financial institutions are not instruments of
social engineering, and have no government
mandate (charter obligation) to be an agent of
redistribution of wealth from rich to the poor.

3
Credit Unions Were Not Created to Serve the Poor
Rather, CUs enabled by law as depositor
controlled, cooperative financials that ran on a
not-for-profit basis. Legislative intent
language extolled the benefits of CUs to the
person of modest means meaning people not rich
enough to own their own bank. Service to
people of Modest means is not a required legal
mandate for credit unions.

4
Serving the Underserved is not required, BUT..

• Skill and products aimed at serving the
  underserved is a necessary survival skill for
  financial institutions.
• Building economic self-sufficiency is good for
  America, and the long-term economic health of our
  nation.
• Consistent with historical CU philosophy about
  providing economic opportunity to all.

5
Why the Pressure on Credit Unions?

• Competitors / Banks - - forcing CUs into
  less-profitable lines, keeping mainstream
  (large-dollar savings and lending) for
  themselves.
• Government Agencies - - Public Policy logic,
  resulting in political pressure
• Consumer Groups - -
• Some dependent on entitlement funds from CRA and
  wrongfully assume CUs are guilty of the
  community looting committed by banks.
• Need more participants in worthy programs

6
Serving the Underserved is Good Business

• Banks believed niche markets should be served
  profitably
• Regulators consumer protection groups looked
  away
• Payday lenders in business with or subsidiaries
  of banks
• Subprime mortgage loan crisis
• Credit card tactics labeled abusive to consumers
• Fleecing of the military
• Student loan rates soared, illegal kickback to
  colleges
• Cost of risk-weighted services skyrockets
• Result Wrong Way increases pressure on CUs to
  fill needs w/ honest, low-cost services
• Congress steps in 2007, additional regulatory
  burden on the way
• for all

7
Unbankable Clock Settings for October, 2007

• One UNBANKABLE baby birth every
• - 7 seconds
• One BANKABLE/ACCOUNT-HOLDING adult death every
• - 13 seconds
• One UNBANKABLE international migrant (net) every
• - 27 seconds
• Net gain of one UNBANKABLE person every
• - 11 seconds.
• Net gain of 2.8 million new UNBANKABLES every
  year.

8
Are CUs Keeping Up?

• Annual WA population growth 2.2
• CU net new member growth to keep market share
  2.2
• 1/3 Unbankable, Unbanked, Underbanked
• Attract with
• Appropriate programs
• Welcoming service culture
• Financial education
• 2/3 Bank-Ready
• Attract with
• Better rates
• Branch convenience
• Marketing sales

9
Number of Unbanked, Underbanked

• General Accountability Office (GAO) 56 million
• (1/5th of all adults in the nation)
• Other studies low 20 million, mid 40 million,
  high of 73 million
• Despite differing estimates, it is undisputed
  that tens of millions of adults in the United
  States are either unbanked or underbanked or
  unbankable

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Who are the Unbanked, Underbanked Unbankable?

• 61 million under age 14
• 25 million illegal immigrants
• 12M illegal immigrants (GWB Admin statistics)
• 38M illegal immigrants (Californians for
  Population Stabilization)
• 10M non-English speaking (1/3 Hispanic)
• 7 million people were behind bars, wearing
  tracking devices, probation or parole
• 1 million homeless any week (3.5M year)
• 25 million bad credit history, FICO 599 or lower
  (75 adults over 18, 725 mean)
• 8 million bad deposit account history
  (Chexsystems)
• 2 million declare bankruptcy (2005)
• 2 million newly divorced each year (15 adults
  divorced at least once)
• 23 million file disability claims, cant work/pay
  each year (iii.org)
• 14.8 million major depressive disorder affects
  (6.7 pop. Over 18 NIMH)
• 7 million annually unemployed with no new job to
  go to (BLS)

11
Transition Into Adulthood

• Emancipated teens and young adults can take up to
  10 years to attain bankable self-sufficiency
• Not all transition successfully
• College students graduating with increasingly
  high debt loads
• Average 4-year debt 19,237 (2/3rd of all
  graduates)
• 1/4th over 25,000
• 1/10th over 35,000
• Graduates Professional Degrees
• 27,000 to 114,000

12
Undergraduate Education Debt

Source US Department of Education
13
Total Education Debt for Graduate Students

Source US Department of Education
14
Public Policy the Unbanked

• US Compassionate Nation
• Want to help all. Societal Goal Eliminate
  poverty in America
• Cost of Government safetynets too much for
  taxpayers to fully afford Welfare, Medicare,
  Social Security, Housing Assistance, etc.
• Pressure on private sector to
• Provide jobs, access to cash, subprime or
  risk-based lending, help acquiring assets.
• Personal Assets Net Worth Lower cost of
  Government Provided Safetynets
• 60s 70s War on Poverty
• 70s 80s Welfare to Work Programs
• 90s to present Homeownership Society

15
Contemporary Politics Clinton Administration

• Presidents Economic Advisors invent
  Homeownership Society
• Resolution to future Solvency of Social Security
  
• (Homeowners have resources in retirement less
  gov. dependency)

Source Federal Reserve, US Bureau of Labor
Statistics, Bureau of Economic Accounts
16
Contemporary Politics Bush Administration

• 2000 GWB makes Homeownership one cornerstone of
  domestic economic policy
• Republicans and Democrats unite in Public Policy
  vision
• Asset-building becomes common quest

17
Bush Administration

• Over the long-term, homeowners become wealthier
  than renters

18
Bush Administration

• Lowest income groups get best benefit from home
  ownership

Source Heritage calculations based on U.S.
Federal Reserve Board, Survey of Consumer Finance
(1998)
19
Test of Time

• Does an Asset Building basis for Public Policy
  Work?

1945 was the first year for which data is
available. 1945 average net worth for American
households was 5,084, climbing to 186,389 by
2005. Chart is adjusted for inflation. Data on
net worth is the market value of assets owned by
households and non-profit organizations obtained
from the Federal Reserve. The data is converted
from nominal to a 2000 base year using the CPI,
then divided by population. Non-profits added
because Fed calculates that way.
Source http//www.angrybear.blogspot.com/
20
Real Net Worth Growth by President

Source http//www.angrybear.blogspot.com/
21
Both Political Parties Agree on Economic Policy
Which is Best at Asset Building
Best Pressure on Gov. Agencies Private Sector
to make it happen (Twisting the arm of Financial
Institutions and their regulators)

Source http//www.angrybear.blogspot.com/
22
CUs Benefit by Serving All

• Skill, desire and products aimed at serving the
  underserved, underbanked, unbanked and unbankable
  is a necessary survival skill for financial
  institutions
• High percentage of population goes in and out of
  this category
• Building economic self-sufficiency is good for
  Americans, and the long-term economic health of
  our nation
• Competency is necessary for long-term
  institutional growth and health

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Serving the Underserved, UnBanked, UnderBanked, an
d UnBankable Presented by John Annaloro,
President/CEO WCUL