The Financial Services Conference is a key national gathering for consumer advocates and educators interested in new products and regulation which continue to transform the consumer financial services market place (Consumer Federation of America: www.consumerfed.org).
I participated in the CFA’s 30th Financial Services Conference which held on November 30 & December 1, 2017 in Washington DC. This conference brought together, powerhouse consumer advocates: leading non profit organizations, for-profit organizations, agencies, and educators working in financial services industry.
Among the many important issues, financial products, and regulations discussed during the conference, here are few highlights that I found worth sharing:
How Low Income Consumers Use Financial Services
According to the consumer household survey by the Federal Deposit Insurance Corporation (FDIC), households that earn $30,000 or less are “underbanked”. This research shows that one in four US households is “unbanked” or “underbanked”.
Another result of this survey is that:
Lower income households are three times more likely to be burdened by debt payments, which usually account for over 40 percent of their income. Share on XThe FDIC survey also reveals that the unbanked are more likely to use mobile devices to access or meet their banking needs.
According to Prosperity Indiana, understanding how lower-income households use financial services informs our work to empower consumers and communities.
The Future of Payday Lending
Payday lending is usually a short-term, but high cost loan, generally about $500 or less, typically due on your next pay day (ConsumerFinance.gov). The borrower usually writes a check of the amount to be borrowed plus the high interest, and post dated for the pay day.
Carrie Hunt, Executive Vice President of Government Affairs and General Counsel, stated that the number one thing consumers want is “convenience”. Payday lending provides this convenience to the consumers; however, credit unions provide consumer-friendly alternatives to the predatory payday lending.
The panelists examined how Credit Unions can scale payday lending alternatives. According to Carrie Hunt, Payday lending costs credit unions a lot of money, even if it makes them money, it is the tiniest bit. Scaling this practice ultimately lies in changing consumer mindset about Payday lending.
Diane Standaert, EVP, Director of State Policy, Center for responsible lending, called on the Credit Unions to get rid of bad products. Bad products drive out the good products. She called attention to the large market for credit unions in smaller loans such as credit cards.
Predatory payday loans have collected billions of dollars from consumers. In Florida alone, $2.5 billion in payday loan fees were collected. Interest rates are the simplest and most effective way to protect consumers (Lauren Saunders, Associate Director, National Consumer Law Center). States therefore, need to cap interest rates for payday and title loans.
Looking at the future of payday lending, lawmakers have a clear decision to make: either stand with the predatory lenders or stand with the people” (Lauren Saunders).
Student Loans and Debts
Michelle Singletary, Author, and Nationally Syndicated Columnist, The Washington Post, gave what may be considered the best luncheon keynote address. She talked about student loans, debts, and money management in general. Michelle moved the audience with her speech, and made everyone fall in love with budgeting. In fact, she was basically informally voted the best luncheon keynote address ever. Summary of her speech is highlighted below:
- We have a generation of people who only know debt.
- People make financial decisions based on emotions instead of facts and figures.
- There is need for us to change the conversation about debts and how we send people to college (student loans).
- There is no such thing as bad debt; if debt was a person, I will slap him.
- You never save when you spend
- We have to retrain people on how they think about money.
A budget doesn't tell you what you can't do, it tells you what you CAN DO ~ Michelle Singletary Share on X
Credit Scoring Models and Credit Availability
New data shows that US household debts have reached a record high of about 13 trillion dollars ($13T) including mortgage debts (Alanna McCargo, Cordinator, Housing Finance Policy Center Urban Institute).
Dara Duguay, Executive Director, Credit Builders Alliance, made Credit score affects a lot of things, not just financial services. Your credit score can affect your ability to rent an apartment, secure a job, get a cell phone service, and can also affect your driving record.
Credit score is now a major determinant of the price of auto insurance than your driving record ~ Dara Duguay Share on X
Despite the importance of credit and its effects, about 20% of American households are credit invisible; about 30% to 45 % of low income Americans are credit invisible. Credit invisibles are consumers who do not have any record whatsoever at any of the there credit bureaus. They do not have any credit scores.
Solutions and New Developments in the Credit Scoring Industry
There are a lot of new developments in the credit industry that benefit the credit invisibles and help you establish good credit record, these include:
Credit Score X
One popular solution discussed is the CREDIT SCORE X. The credit score X is like a second chance credit score, giving the credit invisibles a second chance at having a credit score. It looks at alternative ways to bring in those data that are not captured by the traditional credit scoring models, such as:
- Rental history
- Phone usage
- length of time at a particular address
According to Dara Duguay, for everybody to be financially included, Credit Bureaus will have to accept the new data sets. What this means for you is that if you are denied credit, and you have maintained good records on any of the new data sets above, you can request to know how the credit decision was made and possibly request the use of alternative scoring method based on these datasets.
Credit Builder Loans
The credit builder loans are not like typical loans. They work backwards. The borrower first starts making payments, then the money (Loan) is released at the end of the loan term. Example: if the loan is for six months, you first start making the monthly payments without receiving the loan. The loan is then released after you complete the payment, after 6 months.
Nova Credit
Nova Credit is a new technological development in the credit industry. It connects Credit Bureaus across the globe. What this means is that if you migrate from another country, the Credit Bureaus in your current country can connect with the Bureaus in your previous country to obtain your credit history. It saves you the from having to start building a brand new credit history. FICO is now operating in over 30 different countries.
One of the opportunities discussed for the Credit Bureaus to think about is to consider working with the mobile phone providers to capture data on financial transactions through cell phones. Since consumers engage in a lot of transactions using their cell phones, capturing this datasets will be a great way to get the credit invisibles to generate credit records. Another issue discussed is offering consumers access to their credit reports free at all times, may be quarterly, instead of once a year.
Conclusion
It was an information-filled conference. There are lots of other topics discussed, however, this report will be limited to these. My goal with this conference was to get these valuable information and pass it unto as many consumers as possible because an informed consumer is an empowered consumer. While it informs my financial empowerment practice, it equips you the consumer, with the valuable information you need to make qualified financial decisions that benefit you and your family.
Share this article and empower someone today. Remember, it is possible to end poverty through financial education
Wow! This is beautifully written and highly informative. It feels good to know that the Credit Bureau is looking into other scoring alternatives. For instance, a lot of people never default on their rent, phone bills etc, and it makes perfect sense that those be taken into consideration when scoring their credits. I also love the idea of accessing credit among countries(this could go the other way though:)). But the mere fact that this is feasible means credit scoring now transcends borders and EVERYTHING IS POSSIBLE!!!
Thank you very much Njideka. Yes, these are very welcome developments in the credit scoring industry. It is important that consumers become aware of these new trends so they are better informed in making their financial decisions.