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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

  • Local vendor that helps set up prepaid card services: Pemco

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

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

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

  • CitiBank

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

  • Common Cents Initiative

    Mountain Association for Community Economic Development

    Berea, KY

  • Stretch Loan

    ASI Federal Credit Union

    Harahan, Louisiana

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


  • Community Development Banking Listserv