Financial product innovations trends
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Financial Product Innovations & Trends. Rural Family Economic Success Institute November 2, 2009. Financial Product Innovations & Trends. Low-income people need financial services! They must be a good market, or the predatory lenders wouldn’t serve them!

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Financial product innovations trends

Financial Product Innovations & Trends

Rural Family Economic Success Institute

November 2, 2009


Financial product innovations trends1

Financial Product Innovations & Trends

  • Low-income people need financial services!

    • They must be a good market, or the predatory lenders wouldn’t serve them!

  • Some financial institutions are bringing better products on line to serve the low-income market.


A sampling products to consider and promote

A Sampling:Products to Consider and Promote

  • Pre-paid cards

  • Low cost check cashing

  • Credit builder products

  • Low cost payday lending

  • Free tax filing & other options to RALs


Pre paid cards

Pre-paid Cards

  • Consumers can load their money on the card at participating banks, check-cashing facilities or credit unions.

  • Pre-Paid cards can be used to pay bills, mortgages and purchase groceries, or to buy products on line.

  • No overdrafts are permitted.

  • Pre-paid cards allow consumers to securely carry on vital financial transactions without an active checking account or a without a credit check

  • You can monitor your card uses and balances on line.


Pre paid cards1

Pre-paid Cards

  • Check local banks, credit unions or others to see if they offer them.

  • Online account provider: netSpend www.netspend.com

  • Local vendor that helps set up prepaid card services: Pemco www.pemcotech.com


Alternatives to check cashing

Alternatives to Check Cashing

  • About 106 million Americans do not have bank accounts.

  • Many are on Chex Systems and cannot obtain an account.

    • Chex Systems: a national reporting system that rates people’s check-writing reliability like a credit report

  • Check cashing stores used to be their only option…

  • … but their fees are very high


Alternatives to check cashing1

Alternatives to Check Cashing

  • Some banks and credit unions are creating lower cost products and services to help these consumers conduct transactions.

  • Checkless checking accounts offer low-cost check cashing services for second chance customers.

    • They charge lower fees per check, much less than “traditional’ check-cashing stores.

    • Customers have the opportunity to open new accounts.


Alternatives to check cashing2

Alternatives to Check Cashing

Checkless Checking Example

  • Key Bank

    https://www.key.com/html/direct-deposit-checkless-account.html


Alternatives to check cashing3

Alternatives to Check Cashing

  • Get Checking

    • A financial education course that “certifies” customers can operate a checking account

    • Used by Consumer Credit Counseling Services

    • Program is designed to help consumers on Chex Systems become eligible for 2nd chance accounts

    • Six hour seminar

    • Students must settle all existing debts and not have any fraudulent marks on their Chex Systems report before they get certified.


Alternatives to check cashing4

Alternatives to Check Cashing

  • Get Checking http://www.creditservicer.com/pages/chexsystems-help/get-checking.php


Credit building

Credit Building

  • Many unbanked and underbanked people have poor credit or no credit at all.

  • Poor credit is “a gift that keeps on giving”

    • Affects ability to get loans, buy homes, rent apartments, in some cases get jobs

  • One answer is a credit builder CD

    • No-risk loan (to the lender) that help customers rebuild credit and build assets

    • Customer takes out loan to buy a CD

    • The CD is pledged as collateral to secure the loan

    • Customer pays off the loan – Regular loan payments go on their credit record

    • When paid off customer has both savings (the CD) and a better credit record.


Credit building1

Credit Building

  • Southern Good Faith Fund www.southergoodfaith.org

  • CitiBank https://www.citicards.com/cards/wv/cardDetail.do?screenID=940


Alternatives to payday lending

Alternatives to Payday Lending

  • Payday lending is the practice of making revolving, short-term loans at a high cost -- targeting those who can least afford it.

  • As of 2005, there were:

    • 23,000 payday loans outlets nationwide

    • Over $40 billion in loan volume

    • Over $6 billion in finance charges.

  • As of 2008, 717 locations in Washington State (see 2008 Payday Lending Report for more)


Alternatives to payday lending1

Alternatives to Payday Lending

  • Credit unions are leading the way in providing lower cost alternatives to payday loans.

  • Typically these programs:

    • Offer credit union membership to borrowers

    • Make loans without reviewing credit score or history

    • Have a moderate maximum loan amount

    • Short term installment loan; max term of 90 days

    • No rollovers and additional loans are permitted

    • May open savings account

    • May offer financial education


Alternatives to payday lending2

Alternatives to Payday Lending

  • A Better Choice

    Pennsylvania Credit Union Association

    Harrisburg, PA

    www.PaCreditUnions.com

  • Common Cents Initiative

    Mountain Association for Community Economic Development

    Berea, KY

    www.maced.org

  • Stretch Loan

    ASI Federal Credit Union

    Harahan, Louisiana

    http://www.asifcu.org/personal/loans.aspx


Options to refund anticipation loans rals

Options to Refund Anticipation Loans (RALs)

  • Millions of Americans look forward to tax season. They are due a refund and have ideas for how they will spend that refund.

  • Commercial tax preparers capitalize on the desire of customers to receive this money quickly by offering RALs.

  • These loans have high annual percentage rates (APR).

  • And if the actual refund is smaller than the anticipated amount, the borrower still must pay the loan in full.


Options to refund anticipation loans

Options to Refund Anticipation Loans

  • As discussed earlier, free tax preparation services can save a significant amount of money for patient filers.

  • Other options include:

    • Low-APR RALs offered by some banks and credit unions

    • Electronic filing with direct deposit – almost as fast as a RAL


Useful resources

Useful Resources

  • Center for Financial Services Innovation

    • http://www.cfsinnovation.com/

  • Community Development Banking Listserv

    • E-mail [email protected] with subscribe in the subject line


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