Washington, DC: CAB Meeting 09/11/2014 pt 1 of 2


Welcome to the Consumer Financial Protection
Bureau’s public meeting of its Consumer Advisory Board or CAB. My name is Zixta Martinez, I
am the Associate Director for External Affairs at the Consumer Funding Protection Bureau
or the CFPB. Today’s public meeting is being held at Elstad
Auditorium on the campus of Gallaudet University in Washington, D.C. This is the third CAB
meeting of the year and, as always, we have a packed schedule.
First we will introduce CAB members including newly appointed CAB members. Then the CFPB’s
director, Richard Cordray will provide opening remarks. After which Director Cordray will
swear in the new CAB members and we will transition the CAB leadership. Then we will hear from
two CAB members who will highlight trends and themes in student lending and in asset
building. After this the Consumer Advisory Board will discuss technology and its nexus
with access to financial products and services as well its potential to increase consumer
engagement. The public meeting will adjourn at approximately
four o’clock with the break for lunch between 12:30 and 1:30.
As many of you know, the Dodd-Frank Wall Street Reform and Consumer Protection Act which created
the CFPB also provided for the establishment of the CFPB’s Consumer Advisory Board to advise
and consult with the CFPB in the exercise of its functions and to provide information
on emerging practices in consumer financial products or services including regional trends,
concerns and other relevant information. Today’s public meeting and discussion is in
support of this statutory responsibility. As a reminder, the views of the CAB are greatly
appreciated. However, they do not represent the views of the CFPB.
Today’s public meeting is being recorded and will be available on ConsumerFinance.gov.
You can follow CFPB on Twitter and Facebook. So let’s get started with an introduction
of the current and new CAB members as well as CFPB staff.
The new chair is Bill Bynum. Bill is the CEO of Hope Enterprise Corporation in Jackson,
Mississippi. The new vice chair is Maeve Elise Brown. Maeve
is Executive Director of Housing and Economic Rights in Oakland, California.
Gary Acosta is the CEO and cofounder of the National Association of Hispanic Real Estate
Professionals in San Diego, California. Jo Ann Barefoot is CEO of Jo Ann Barefoot
Group in Washington, D.C. Don Baylor is a Senior Associate at the Urban
Institute in Austin, Texas. Steve Carlson is the cofounder and CEO of
Ascent Consumer Finance in Mountain View, California.
Laura Castro de Cortes is the Director of Business Product Development for Meta Payment
Systems in Omaha, Nebraska. Elizabeth Costle is the Director for Consumer
and State Affairs at the AARP Public Institute in Washington, D.C.
Prentiss Cox is an Associate Professor of Law at the University of Minnesota in Minneapolis,
Minnesota. Patty Hasson is the President of Clarify in
Philadelphia, Pennsylvania. Patricia Garcia Duarte is the President and
CEO of Neighborhood Housing Services in Phoenix, in Phoenix, Arizona.
Adam Levitin is a professor law at Georgetown Law Center in Washington, D.C.
James McCarthy is the President and CEO of the Miami Valley Fair Housing Center in Dayton,
Ohio. Jennifer Mishory is the Executive Director
for the Young Invincibles in Washington, D.C. William Nelson is the Associate Director for
Military Programs at the University or North Georgia.
Jose Quinonez is the Executive Director of Mission Asset Fund in San Francisco, California
and is also the past chair of the CAB. Dory Rand is the President of Woodstock Institute
in Chicago, Illinois. The Honorable Annette Rizzo is a Judge of
the First Judicial District of Pennsylvania in Philadelphia, Pennsylvania.
Ellen Seidman is a Senior Fellow at the Urban Institute in Washington, D.C.
Josh Silverman is President for U.S. Consumer Services at American Express in New York.
Robert Stoll is the founder of Stoll Berne, LLC in Portland, Oregon.
Donna Tanoue is the Vice Chair of the Bank of Hawaii Corporation, Bank of Hawaii in Honolulu,
Hawaii. Jane Thompson is the CEO and founder of Jane
J. Thompson Financial Services, LLC in Chicago, Illinois.
Jonathan Zinman is a Professor of Economics at Dartmouth College in Hanover, New Hampshire.
We welcome our newest CAB members. Ann Baddour is a senior policy analyst at Texas Appleseed
in Austin, Texas. Julie Gugin is the Executive Director for
the Minnesota Homeownership Center in Saint Paul, Minnesota.
Brian Longe is the CEO at Wolters Kluwer’s Financial and Compliance Services in Minneapolis,
Minnesota. Joann Needleman is a Vice President at Maurice
and Needleman P.C. in Flemington, New Jersey. Patrick O’Shaughnessy is the President and
CEO of Advance America, Inc. in Spartanburg, South Carolina.
Gene Spencer is the Senior Vice President for Stakeholder Engagement Policy and Research
for the Homeownership Preservation Foundation which is based in Minneapolis, Minnesota.
And Jim Van Dyke is the founder and CEO of Javelin Strategy and Research LLC, a Division
if Greenwich Associates in Pleasanton, California. We also have with us Delicia Hand the CFPB
Staff Director for the Consumer Advisory Board. I am now pleased to introduce Richard Cordray.
Prior to his current role as the CFPB’s first director, he led the CFPB’s Enforcement Office.
Before that he served on the front lines of Consumer Protection as Ohio’s Attorney General.
In this role he recovered more than two billion for Ohio’s retirees, investors, and business
owners and took major steps to help protect its consumers from fraudulent foreclosures
and financial predators. Before serving as Attorney General, he also
served as an Ohio state representative, Ohio Treasurer, and Franklin County Treasurer.
Director Cordray? Thank you, Zixta.
Thank you for joining us today as we at the Consumer Financial Protection Bureau meet
with our Consumer Advisory Board. We always look forward to our dialogue with the CAB
members who share with us their perspective, their expertise, and their actual experience
on the ground across the country. We’re all here because we care deeply about how people
are being treated in the consumer financial marketplace.
We’re particularly glad today to be welcoming seven new CAB members, a new chair, Bill Bynum,
and a new vice chair, Maeve Elise Brown. With our new CAB members we now will have
further opportunities to hear different perspectives and expertise. I thank them for joining us
and I thank all of you for your public service. As we meet here today, we recognize that perhaps
no single aspect of life in America has changed more in the past generation than the relationship
between people and their technological devices. It is a fast-moving and exciting phenomenon.
The information age is transforming leisure, the workplace and indeed all of modern society.
It’s likewise inevitable that these changes will have vast consequences for the consumer
financial marketplace. The worthy challenge for any system of financial
regulation is how to make sure our oversight of the marketplace can keep up with these
far-reaching shifts. We must grasp both the pace and the direction of fundamental change.
And we have to understand and encourage the tremendous benefits of innovation without
undermining the equally important goal of protecting consumers in the marketplace.
Just consider how quickly the technological revolution is unfolding all around us. In
the United States today, about 90 percent of adults now own a cell phone and thus have
ready mobile access to remote and instantaneous communications. A generation ago hardly anyone
did. Consider also that in America today almost 50 million people now have tablets. For many
people they have become a ubiquitous part of life and they give us ready mobile access
to information of all kinds. By access the Internet, downloading certain
applications, or using text messaging, people can now complete most of their transactions
and a great deal of their financial management by using their phones and other mobile devices.
Consumers are using their devices to pay bills on line or send funds to other consumers or
businesses. More and more they’re engaged in mobile banking, using their phones as tools
to access their existing accounts at a bank or credit union or some other type of financial
institution. One study by the Federal Reserve found that
one-third of cell phone users and more than half of smart phone users are using some mobile
banking services. And according to one independent researcher, approximately 74,000 consumers
each day began using mobile banking services last year.
In this modern age where people can manage their money on the go, there’s great potential
to provide access to more consumers to help them build financial capability and allow
them to take greater control of their financial lives.
At the same time, using mobile devices for all sorts of banking services can make some
transactions cheaper or faster, or both. But we need to make sure that the legal and regulatory
framework can keep up effectively so that all consumers can be well served and remain
protected whether they’re opening their wallet or scanning the screen on their smart phone.
We recently issued a request for information that touches on a wide array of issues relating
to mobile banking and financial management services. We want to know more about how emerging
technologies are affecting the opportunities and challenges that consumers are facing.
The inquiry also specifically addresses how the use of mobile payment products can be
used to improve the financial lives of underserved consumers. We also want to know how technological
innovations can offer everyone opportunities for real time money management. And we want
to know how financial institutions are using technologies to better serve customers.
The public comment period for this request closed just yesterday and we look forward
to digesting all the public input along with the feedback we get from our CAB members today.
And, of course, as new developments occur, we may seek further input on these issues
over time. At the Consumer Bureau we have our sights
set firmly on the future. We know consumers are heading in the direction of using more
and different kinds of technologies for financial services and products. To this end we ourselves
are leveraging technology to create tools to help consumers navigate the consumer financial
marketplace. For example, we have our ask CFPB resource
which provides more than a thousand expert answers to commonly asked questions about
consumer finance. Our paying for college set of tools is designed to help families consider
their options with this life altering decision point and assess the costs and risks in terms
that are easy to understand. And we’re developing other tools such as owning
a home for people handling other momentous, but rare financial decisions such as how best
to go about shopping for a mortgage. These tools are user-friendly, easy to navigate,
and presented in plain language that consumers can understand and rely on. They can also
be accessed by mobile devices and one of the most beautiful aspects of modern technology
is it will enable us to continue to update and improve these tools as we get more and
more public feedback on their usability. We’re also making particular progress with
our public consumer complaint database which is playing a tangible role in producing a
shift in the financial industry toward more emphasis on excellent customer service. Our
home mortgage disclosure act database is an easy-to-use online tool that enables consumers
to explore public information about the mortgage market. And our project catalyst is an initiative
designed to encourage consumer-friendly innovation and entrepreneurship in markets for consumer
financial products and services. The Bureau oversees all consumer financial
markets ranging from mortgages to bank accounts to credit cards to student loans and many
more as well. These markets are worth trillions of dollars and there’s no doubt that modern
technologies will continue to play an increasingly important role in how consumers interact with
money and credit. The job of our new agency is to do all we
can to ensure that financial products and services actually are helping consumers rather
than harming them. And that’s why we look forward to a frank discussion of these issues
today. In short, at the Consumer Bureau we are not
content just to watch technology unfold before considering and taking appropriate action
as it affects consumers in the financial marketplace. We intend to move forward alongside industry,
keeping an eye out to protect consumers as these new technologies develop, not simply
after the fact. We appreciate all of you joining us here today
to engage in what I am sure will be a most interesting and productive conversation.
Thank you. And at this time I will now take the occasion
to swear in the new members of the CFPB’s Consumer Advisory Board. So if all the new
members would please stand. Raise your right hand and repeat after me.
I, state your name, do solemnly affirm that I will support and defend, the Constitution
of the United States against all enemies foreign and domestic. That I will bear true faith
and allegiance to the same, that I take this obligation freely, without any mental reservation
or purpose of evasion, and that I will faithfully discharge the duties of the office on which
I’m about to enter so help me God. Welcome to the Consumer Advisory Board. That’s
the same oath that each of us have taken who work at the Consumer Financial Protection
Bureau. Whenever I can, I try to administer the oath to new employees. So I congratulate
each of you on your appointment. And as we work to fulfill the Bureau’s core mission
to help consumer financial markets work by making rules more effective by consistently
and fairly enforcing those rules and by empowering consumers to take more control over their
economic lives, you’re unique insights and experience from this diverse board will be
very valuable to us. Thank you so much. Thank you for your patience as we address some technology issues. And thank you, Director
Cordray for the remarks. I want to take a moment to give outgoing CAB
Chair Jose Quinonez a most sincere appreciation and gratitude for his leadership and direction
of our very first CAB. Jose’s pioneering work establishing our first CAB has laid a strong
foundation that will continue to benefit the important work and role that the CAB plays.
Jose, like the other members of the CAB, freely gives of his time in support of this public
service. As the inaugural CAB chair, he spent countless
hours assisting and planning, organizing, and participating in platforms that provided
the Bureau with a view into the financial issues facing so many consumers. He made sure
we heard heard from everyone including industry representatives, consumer advocates and academics.
On behalf of the Bureau, I would like to thank you, Jose, for your dedication in guiding
the CAB from its inception and I invite you to offer some remarks.
Just quickly I wanted to say thank you so very much for the opportunity to serve. It
has been a high honor to be involved with the CFPB during this very critical stage of
development. And I must say that it was a pleasure serving at the start, being the inaugural
chair for the past two years and I’ve learned so much just by listening and moderating the
conversations with such a spirited group of individual. And now with the new board members
I look forward to learning even more so. I do have to tell you that when the initial
call for membership was issued back in 2012 one of my colleagues, Tara Robinson, actually
suggested that I apply and put my name in the hopper for consideration. And I actually
talked her out of it. I said, “Oh, don’t bother putting my name on it. Don’t bother finding
the application, there’s no way they’re going to like, you know, include me in the CAB because
that’s such a high, very prestigious enterprise.” And I totally saw there was going to be a
lot of D.C.-based people that are going to be around the table. And so much to my surprise,
you know, Tera actually followed through with her push and she actually did submit the application.
And then when I got the call from Richard Cordray, I was so sort of in shock to being
one invited to join the Board, but much more so in being asked to be the chair of the Board.
And I almost fell out of my chair when you asked me that question.
But it has been a great honor and I’m so glad that I had a chance to participate and I really
put the voice of the consumers on the forefront because the work of the CFPB is so critical.
I mean, there are still millions of hardworking families out there that really, truly deserve
a fair deal in the financial marketplace, you know, hardworking people that are working
hard, they’re raising their families, they’re raising the next generation of Americans and
they truly deserve a fair deal and not to be swindled in the financial marketplace.
And I believe that the mission of CFPB is there and I look forward to continuing to
work with the Bureau and the CAB because I think much more work still lies ahead.
So thank you so very much. Thank you, Jose.
Informally transitioning the CAB leadership the CAB will now be chaired by former Vice
Chair Bill Bynum and incoming vice Chair Maeve Brown who will also share some brief remarks
before I turn the meeting over to the new Chair Bill Bynum. We’ll start with Maeve and
then Bill. Thank you very much. It is a great pleasure
and an honor to serve here on the CAB in the first place at all, much less to get an opportunity
to serve as vice chair. This is a fantastic group of people. I’m super
excited to work with the new people who have joined as well. And you will make our conversations
all the more rich and interesting and useful, I am sure, for the CFPB.
I have found the CAB to be — discussions to be incredibly thought-provoking and the
depth of experience that people bring to be really useful. So, I look forward to being
able to help further facilitate the work of the CAB in its role vis-�-vis the CFPB and
to support the work of the chair, Bill Bynum. The work of the CFPB is deeply needed as we
all know. So thank you for this opportunity.
Bill. Thank you, Zixta.
Director Cordray, it’s really difficult not to be reminded when I listened to people take
the oath of office this morning, what an amazing country that we live in. And one of the things
that makes it so wonderful is diversity. And as I look at the backgrounds of our new colleagues
on this Board and as I’ve had an opportunity to work with the amazing group that you put
in place during the inaugural board, it’s clear that you brought together an impressive
group of experts who bring a diverse range of perspectives to the important work of the
CFPB. So thank you for assembling this group. As for my perspective, as Zixta said, I work
with Hope Enterprise Corporation and I also work with Hope Credit Union. So I know what
it means to be regulated. My credit union has a unique market niche.
I work in the state of Mississippi, Arkansas, Louisiana, and Tennessee. And in Mississippi
62 percent of all of our residents do not have enough savings to last them three months.
It is the most impoverished part of the country; 72 percent of African Americans in Arkansas
are either unbanked or under banked. Forty percent of my members at Hope did not have
a banking account when they joined our credit union.
Many of my members and people like them in communities all across this country are on
the edge of the economy. They work each day. They want the same things that we all want,
they want an education for their kids, they want a safe, decent home in a good neighborhood,
pretty reasonable stuff. But, again, for many of them the financial playing field is uneven
making even those modest ambitions almost unreachable. And so it’s these people, their
kids, they’re kids’ kids that really drive me to participate on this CAB.
So I thank you for this opportunity to share some of their realities in my service, the
things that they experience in the financial marketplace with this Bureau as you engage
in activities that help ensure a level playing field for all Americans.
Finally, Jose, it was a privilege to serve with you. As we started down this path there
wasn’t a roadmap, but you did a great job pointing us in the right direction. And so
thank you for kicking the tires and filling it up with gas. Maeve Elise, let’s step on
the accelerator and see where we can take this thing.
Okay. Thank you.
Thank you, Bill and Maeve. We are looking forward to your leadership and guidance of
the Consumer Advisory Board and, Bill, the meeting is yours.
Thank you. Thank you, again. Good morning, and welcome. We will start this
CAB meeting this morning with what’s become one of my favorite activities, hearing from
our fellow CAB members. At each CAB meeting we invite members to share
information from their specific expertise. To date we’ve had members talk about issues
from Consumer Protection and service members, older Americans, arbitration, preacquired
account marketing and other very interesting topics.
Today CAB member Jennifer Mishory and Jose Quinonez will present on student lending issues
and lending circles. We’ll start with Jennifer. Jennifer Mishory currently serves as Executive
Director for Young Invincibles. Her experience includes testifying before Congress about
private student loans, about federal financial aid, authoring publications on topics such
as consumer awareness about student loan decisions and the impact of student debt on buying a
house, representing young consumers in numerous capacities, including as a consumer advocacy
negotiator in 2012 when she helped negotiate rulemaking around federal student loans, and
as a consumer representative to the National Association of Insurance Commissioners. I’ve
been enlightened on many occasions by Jennifer and look forward to your presentation this
morning. Thank you.
Thank you so much, Bill. And just to give a little background, as the
Executive Director of the Invincibles, we work on expanding economic opportunity for
young adults 18 to 34. We engage in research, policy analysis. We talk to debtors all the
time and hear from them about both their experiences in accessing college, but also in dealing
with their student debt when they leave school. And so I want to give a sort of brief overview
of what the student loan market looks like, what the debtor experience is, what we hear
directly from debtors and then just open it up to conversation and questions. I think
there’s a lot of lessons we can learn from other financial products, other trends that
we’ve seen. So I’m looking forward to hearing from you all.
Speaking of technology. Do you all know where I’m supposed to be pointing
this? Perfect. So just a brief overview. I’m going
to give some numbers on both rising college costs, enrollment, and then what’s going on
in student lending, some trends both in private student loans and federal student loans, ask
some questions about implications, what does this mean both for an individual consumer,
but also for the economy as a whole and then talk about a lens in which I used to look
at these issues. What do we do to prevent some of these issues? And then what kind of
relief do we provide when we already have a lot of folks who are struggling with debt?
So just quickly by the numbers. Looking at college costs and enrollment. The average
tuition at a four-year public school is about two to three times what the average tuition
was in 1980. So when I went to school, I graduated in 2007 from college, my tuition was probably
about three times what my mom paid, and that’s taking into account inflation. But actually
things got worse during the great recession. So we saw another increase in tuition when
states started to disinvest in higher education. So I took Arizona as an example where state
tuition actually doubled between I think it was 2007-2008 and today. So a very sharp increase.
My college, I paid about probably $6,500 a year for tuition when I went to a public school.
I graduated in 2007, again. That same college is now charging $13,000. So a very steep increase
in the cost of public education. We have more people enrolling, so we have
a very steep increase in the folks who are actually enrolling in post-secondary education,
whether it’s a certificate program, a two-year program, a four-year program. More people
obtaining a graduate degree on top of a four-year degree as well. And that’s also contributing
to increased costs. We also have a lot of folks who enter school,
but they don’t complete school. So most higher-ed finance and economists who look at this closely
will agree the return on investment of a post-secondary degree is worth it. It is worth it. If you
make the right choices and you’re smart about your decision making. Unfortunately, a lot
of folks do enter and they don’t complete. So 56 percent of those who enter a four-year
institution — only 56 percent will leave with a degree in six years. So it’s pretty
low numbers that are actually entering and completing.
And obviously those outcomes and those costs vary by sector. So, for example, completion
is a particular problem that for-profit institutions where about 54 percent of borrowers dropped
out. And the next slide.
So next, by the numbers, we’re looking at student lending. So what is the universe of
folks we’re talking about? Very large universe. We have about 40 million people who have student
loans. And the numbers of people who leave college every year with student loans are
going up all the time. So now in 2012, about seven in ten college grads left school with
student debt. So most people who go to school are leaving with student debt.
The average borrower leaves with about $30,000 in student debt. You know, we’ll see a lot
of media coverage of folks who are leaving with much higher numbers. In reality, the
numbers of folks who are leaving with the $100,000, $120-150,000 much smaller number.
That doesn’t mean that they aren’t actually facing a lot more struggles in paying that
debt back. In terms of the numbers, it’s a smaller portion of people.
So collectively Americans owe about $1.2 trillion in student debt. That’s more than credit card
debt, more than auto loans, and private student loans that account for about $150 billion
of outstanding debt, so the rest of it is federal loans.
Next slide. So what does this mean for — oh, the one
before that. There we go. So what does this mean for someone who actually
has student debt? A lot of debtors are struggling with the volume that they have. So about 12
percent of student debt is past due. The latest data shows that about 15 percent
of federal borrowers will default in three years. So that means someone who is leaving
school whether or not they graduate when they enter a payment, within three years 15 percent
of them will default on that loan. On the private side, cumulative defaults on
private student loans exceeded about $8 billion and represented about 850,000 distinct loans.
And certainly these outcomes are more difficult for someone who doesn’t complete, people who
don’t complete school are about four times more likely to default
on their loans.
Go to the next slide. I think I’m missing one. Well, just very briefly,
looking at trends in private student loans. So we saw a real increase in the amount of
private student loans that were going out, particularly between 2001 and 2008. So it
was less than $7 billion before 2001, increased to about $20 billion in 2008. We saw a lot
of predatory marketing practices. We saw very loose underwriting. A lot of loans that were
going out to folks were very risky for the borrowers who were taking them out.
Go to the next slide. That changed. With the great recession and
with the credit crunch we saw annual volume decrease significantly to about $5.2 billion
in 2010, 2011. Underwriting increased, the FICO scores were much higher. Private lenders
were requiring cosigners. And so we’ve seen in the last year or so, some pick up again
in that market. It’s unclear where that market is going to go and how much that’s going to
pick up. But in the last year certainly we saw $6.2 billion in student loan originations
in in 2012-2013. Go to the next slide.
So what’s going on in federal loans? We saw substantial change in how federal loans were
originated and sent out into the marketplace about five years ago, four years ago when
we used to have the federal government send out loans that were then basically giving
an intermediary payment in order to then guarantee that loan and send that out and service that
loan. Those were called the FFEL loans. So we had federal subsidies going out to help
send these loans out. The Department of Education brought those loans back in and now all new
originations are direct education loans. And we’ve seen an increase in federal loans so
in 2014 students borrowed about $100 billion in federal loans, that’s for the 2014 fiscal
year. We’ve seen some debates in interest rates.
Interest rates were set to rise. Congress stepped in and changed the way that we set
interest rates on the federal level. Right now they’re tied to the market with a cap
on where they can go. Most people who work in sort of consumer protection
around higher education finance will say that federal loans are better for borrowers. They
have more protections. They have better repayment options. So, for example, you can enter an
income-base or payment option if you are struggling. So you took the risk, you went to college,
and it didn’t work out. And so you’re actually facing a high debt level and you’re just unable
to make that payment. Or maybe it did work out, but it’s taking you nine months, two
years, three years during the great recession to start to see that return on investment.
Federal loans will offer you an income-base or payment plan so that you can pay based
off of your income as you try and get on your feet. That’s not necessarily an option in
most private loans. Most federal loans will have lower interest
rates than private loans. On the private side you can see them as high as 13 percent.
And, finally, federal loans are an access tool for people trying to access college.
Particularly in the last few years, obviously private loans have not been going out to perhaps
folks that need to access college most. And so they provide an access point for people
who are trying to pay for college. Particularly as costs have skyrocketed grant aid has not
kept up with that increase. Next slide.
So what do we hear? We hear from debtors all the time about challenges they’re facing in
dealing with both the amount of debt they have and then also the industry that deals
with how they pay it back, servicers, debt collectors, et cetera. So cost is certainly
just the sheer volume, the sheer number that a lot of debtors are leaving school with are
impacting their day-to-day lives. So we administered a survey of folks that interacted with Young
Invincilbles. About 15 percent of survey respondents said they had been denied a mortgage because
of their debt. We administered a survey to private student
loan debtors. About 35 percent of respondents said they had borrowed from friends and family
to try and keep up with payments because they were struggling and they didn’t know where
else to go. They don’t have that kind of income-based option that you see other places.
We also hear about major process issues, particularly on the servicer side. So, problems when their
loan is being transferred between servicers, incorrect calculation of payments, unclear
information given on the phone in terms of what their options actually are.
We have debt collectors who are supposed to be both collecting debt that’s owed that might
be in default, but also counseling debtors to actually rehab their loans. That’s a conflict
and that provides a lot of problems when students are actually trying to get back on track.
So in the survey we administered almost 40 percent of respondents said their servicer
was very unwilling to negotiate new terms, they couldn’t reach someone, or they couldn’t
reach someone to answer questions. So we’re having debtors who don’t know where to turn
when they are trying to figure out how they can repay their loans. And often, even if
they can get someone on the phone and they can talk through those options, if it’s a
private loan, there’s really no guarantee they’re going to be able to actually negotiate
some sort of modification or change. Go to the next slide.
So I think there’s a lot of questions about what this means, the implications of the rising
student debt that we see. You know, on the college access and success side, I think there’s
a big question about whether with costs so high and debt so high it will actually depress
interest in attaining a degree which is both problematic for an individual. And individual
who goes to college makes smart choices in terms of how they pay for school and where
they go and what they study will see a return on that investment. And so we want to make
sure that we have access for folks who are interested in doing that and for whom climbing
that ladder is going to require a degree. There’s personal implications in terms of
financial pressures and life decisions. We hear from people who are waiting to get married,
waiting to start a family, waiting to figure out if they’re going to be able to make their
payments, and waiting to figure out if they can actually go grocery shopping. So there’s
a whole range of very severe day-to-day financial implications, particularly those who are struggling
with debt and maybe don’t have a job during the great recession. So we saw a lot of that
over the last few years. And then there’s broader questions about economic
repercussions. How is this impacting the housing market? We’ve seen more surveys, more data
starting to come out, particularly over the last 18 months, around an impact on the housing
market where, you know, folks who have student loans are less likely to be taking on a mortgage
than those who don’t, which is a huge change from previously.
What’s the impact on other big-ticket purchases that might impact the economy? Buying a car,
you know, all those other big-ticket purchases that someone in their late 20s might start
to think about, but if they had that debt load may not.
And then finally the impact on retirement savings. So if you’re paying off your debt
well into your 30s, maybe your 40s, you know, if you are an older American who either took
out debt to pay for your child’s education, or took out debt to go to school yourself,
which we’re seeing a lot of as well, that’s obviously going to impact your retirement
savings and have broader implications. Go to the next slide if there is one.
So in terms of solutions and how we think about interventions, you know, I think there’s
a lot to be done on the preventive side. One, of course, is reining in college costs. I
think that that’s a very broad social question about how we’re investing in our institutions,
how we’re ensuring value and quality of education. That’s a tough one, it’s a big one.
There’s a lot to be done when people are making decisions about where they go to school, what
kind of debt they take on. So, for example, a huge number of young people who are making
decisions about what kind of loans they’re going to take on could have actually taken
on more federal debt, but ended up taking out private loans instead when they actually
qualified for more federal loans, which again tend to be better for the consumer.
We need to figure out how to make sure that that doesn’t happen and that people are actually
making decisions that make sense for them and they know what they’re doing when they
make those decisions. Improved data and transparency, both in terms
of the types of debt and, again, making good decisions. If you are going to have to take
on debt, but also in terms of the outcomes of your educational investment. So where are
you going to school? What are you studying? Is the school that you’re going to going to
actually provide you with value so that you can pay down that debt and actually have a
more fulfilling economic life. If you go to the next slide.
And then there’s responsive action. So, again, we have a huge loan volume out there. We have
a lot of debtors out there and we have a lot of folks who are struggling day-to-day to
deal with the debt that they have. So right now, you cannot discharge your loans in bankruptcy.
I think there’s a lot we could do on that. Right now a lot of folks cannot modify their
private loans or refinance their private loans. So they have very little options when they
are struggling. And even as — if you look at the last bullet, even if they have repayment
options that are available with federal loans, they don’t always know about them. Their servicers
aren’t always telling them about them, their servicers aren’t always making it easy to
get into those better options. And then finally, regulating and improving
debt collection servicing so that the day-to-day experience and the experience when you are
struggling and you need the best customer service and the most protections, that that’s
actually there. I think that was it.
Thank you. Very insightful. I’ll open up now for questions and discussion among the CAB.
Dory? You talked about the value and the quality
of the education affecting whether there’s a good return on investment in taking out
student loans. And I wondered if you could talk about the U.S. Department of Education’s
gainful employment rule and how that could affect better quality education or better
student choices in which institutions they attend?
Sure. The Department of Education is currently considering a rule around — a rule that would
permanently affect career, education, schools around sort of what value essentially a school
has to give on the outcome side in order to access aid. And that certainly could impact,
you know, who is able to access that aid and sort of the information that’s also available
in terms of what kind of value a student is getting when they attend school.
Yes, Laura? Jennifer, do you have any information when
these loans are being presented to the students at financial education — I mean, at the financial
offices at the universities, do we have studies of how — if some universities are better
at advising students than others that they really kind of go into this is the kind of
loan you’re taking, this is why this one might be — I mean, are there any studies? Because
they’re the ones that are kind of giving the information, they’re kind of the gatekeepers
in a sense. And do we know if the schools somehow benefit by presenting one loan other
than another? I mean, I think that there’s a lot to be done
on the front end, particularly, for example, the types of information that a student has
when they’re making a decision. I mean, a student coming in who is trying to make a
decision about where to go to school and what kind of debt to take on, may not even have
a very good grasp on the difference between a grant and a loan. You know, very, very basic.
And not only that, but the type — the financial aid award letter that they receive may actually
not be very clear as to what that is and the difference. And I know there’s been some work
done to make sure that more schools are taking up a standardized financial aid award letter
so it’s more clear. But there is certainly a lot to be done on the front end to make
sure that happens. There is, on the federal side, requirements around federal loan entrance
counseling, federal loan exit counseling and the kinds of information that need to be provided.
And that also needs to be improved. We need to be tracking that more and making sure that
students are actually gaining some value out of that as they’re leaving.
Tricia. So my comments are a little bit similar to
Laura’s. Having recently completed or helped my son with a FAFSA a year ago and how the
improvements have been compared to when I went to college have been really significant,
a lot of great improvement. But the one thing that I did notice is that it gives the student
recommendations. They tell them what they’re qualifying for. But to your point, it’s not
clear. What’s the difference between all the types of loans that they’re eligible for?
And I think that that’s an area that we could encourage some better definition and understanding
so that the student makes the right choices. And I understand also that not every student
is going to complete this FAFSA. Yeah, that’s right. I mean, one big problem
is that there’s a lot of students who could actually qualify for financial aid and a lot
of it is granted which is what we really want to make sure low-income students are going
to first who aren’t actually completing the FAFSA. So some broader policy recommendations
we’ve looked at is the FAFSA now 106 questions. It can actually be very difficult for a student
to complete that. As I’m sure you saw recently, it can be difficult for a lot of people to
complete that. But imagine a student who maybe has one family member who is in the household
and one who is not, and is trying to figure out exactly how to get the information it’s
asking. So we actually want to change it to be, you know, a couple of questions.
Can you really just drastically change the way we do financial aid policy to make sure
that people are on the front end and more people have access to that grant aid, so they’re
not actually turning to that in the first place.
Yes, Ellen? Jennifer, are there any issues with the structure
of the payment on the loan? Certainly there have been stories about students not really
understanding how to budget what they receive at the beginning of the year and therefore
getting into trouble and having to take out more loans than they might otherwise need.
There has been some research around could you structure financially like a paycheck.
And I know there’s some pilot research around that. So I think there are some people that
are exploring that possibility. I will say that, you know, a lot of students enter college
with a lot of unmet need to begin with. So, you know, not so much that a student is necessarily
over borrowing. Actually a lot of times they’re not accessing the aid they need to even get
through, pay the bills, and complete school. Judge Rizzo?
Great presentation to start this. Quickly though, the numbers that you talk about in
terms of students leaving a school and having this debt remaining, that’s also — maybe
I didn’t hear it, that also considers at the graduate level, pos-graduate level?
That is just people leaving — entering four-year and the calculation of how many people actually
complete that four-year degree. So it’s not looking at someone who is then going into
grad school and whether or not they complete grad school.
I think that at data would be interesting. We’re just seeing trends. At least I know
from the law school level that there’s a true reduction, a significant reduction of students
coming in even applying. And I don’t know if that’s a trend across all the graduate
programs as well, I don’t know what’s impacting in terms of employment considerations and
economic realities in general, and is it your bang for the buck, but I was just wondering
if that was also included in terms of people taking a very focused path and finding that’s
not the way to go. Not in that number. And I know we’ve certainly
seen that in the law school side. I don’t know if we’ve seen that across graduate programs.
I’m not positive. And then I had another — can I double back,
Chair, with the Chair? The other is, I often hear that there’s so
much grant money and scholarship money available that’s sort of left on the table from just
the mere fact that students — and I know there’s a lot going on in their lives and
that of their families — don’t have the chance to actually explore and research grants given
by various foundations, corporations, trusts, whatever, that really can help in terms of
a grant, really help to support students who are trying to complete education. Is there
anything around that to partner in terms of just being loaned from either private sector
or the Department of Ed? Are there any efforts to actually, I guess, enhance the packaging
of information to these students to really see if they can maximize dollars to complete
it? Because some who take up engineering can have certain monies available, et cetera.
I mean, where is all that information? I’m sure it’s easier in terms of the fact that
we have it by way of Internet access. Yeah. I think I’d have to get back to you
on a good trustworthy resource on private grant dollars, which I think is what you’re
referencing. But I would say probably the biggest bang for our buck in making sure that
we’re really changing policies, making sure that people are filling out the FAFSA and
accessing their federal aid because that’s where there’s a lot of dollars that are being
left on the table that are very directed, very well directed to low income students
which is sometimes the case and sometimes not the case with some of the private dollars.
Thank you. Can I jump in? There are services that are
out there for higher income individuals and it can be anywhere from $1,200 to 2,500 to
help you access those services to understand, to go through all of the hoops that you have
go through. They do not exist for low-income though. So if you have the ability to pay
for it, you can access the scholarships and the different services that are out there
and get help writing your essays, et cetera. But it doesn’t exist in the market for lower
income. And there are different non-profits doing that type of work. It’s just slow moving.
Don? Sure. Jennifer, toward the end of your presentation
you talked a little bit about the movement, I guess, by state, federal, and institutional
players to really deliver more information about projected future earnings potential,
kind of based upon kind of the major or discipline that a student may choose to select. And it’s
kind of a two-part question. One is, how effective do you think that type of information is when
it’s delivered to the student, kind of how it’s delivered? And then two, are there concerns
about kind of steering students towards particular majors like stem majors, for example, and
away from other things like liberal arts, for example?
I think it can be effective if it’s delivered at the right time with the right messenger
and the right way. And, I mean, that’s the hardest part. But certainly that information
and probably that transparency for someone making the decision, I mean, people are really
going into these decisions with very little information can only help in figuring out
how we can provide that information better is something we’re working on in thinking
about different tools. And I know that the CFPB has thought about that too with some
of their educational tools. But, I mean, you know, providing that transparency and information
can be a good step. In terms of steering, I think, you know, providing
information and letting a student make a choice is not going to be a bad thing. You know,
the student can make the choice in terms of what they want to do and where they want to
go. Yeah, this is a great presentation. My question
follows up on Don’s which is, is there an active effort by the universities to sort
of intervene say at, you know, junior year or something like that and have — is it the
placement offices, help the person start to think through the budget and the — you know,
what’s it really going to — because you hear that people get out of school and just get
amazed to find out what the student loan obligation is without having thought of it.
And the engagement of the universities in the whole thing including including the cost
management and so on, there needs to be a synergistic approach between the lending and
the higher ed. Yeah, absolutely. I mean, I think universities
could be playing a much bigger role in making sure that people understand what their repayment
options are going to be. So there could be a great role for the financial aid officers.
I hate to wind this down, but we do need to shift to our next presentation.
Fortunately our consumer lending committee is taking up this topic and we will continue
this conversation and look to more input from the CAB. Director?
Just before we do, I did want to say, I don’t want to leave this topic without pointing
out that there are provisions under federal law that are poorly taken up around the country.
One is income-based repayment options on federal student loans. The other is public service
loan forgiveness program that operates at the federal, state, and local level. There
are plenty of people who are making careers in public service and that includes teachers,
police, firemen, firefighters, and we have been challenging municipal, county, state
leaders around the country to take the pledge that the CFPB has provided and to make sure
that their workforces understand their options. There’s an income limit on this, but for many
people in public service that income limit, they’re well within that and they have opportunities
to have their student loans paid down over time and forgiven ultimately based on a current
public service. And we want to make sure that that’s known as widely as possible.
Thank you. And, again, I think this is obviously a very important topic. I see it a lot in
my credit union. A lot of students — a lot of members coming in with student debt and
it limits them, it limits their guarantor’s ability to get access to financing and there’s
been a lot of activity in Mississippi to try to increase the amount of information that
people have. Because I think that’s obviously education and awareness is a big issue. I
think that speaks to the Bureau’s consumer education activities, making sure that people
area aware of options and barriers that are out there. And help, hopefully, inform better
decisions. And so, again, I think this is an important topic.
And, Jennifer, I’m glad you’re on our committee and look forward to hearing more as this develops.
But I also look forward to hearing from our next presenter, Jose Quinonez. Jose has been
busy moderating us, and we haven’t taken time to hear his expertise which is significant.
He is Executive Director of the Mission Asset Fund in San Francisco. He’s been in that position
since 2007. Previously he was policy director for Asset Policy Initiative of California
and the California outreach director for the Center for Responsible Lending. He also has
worked here in Washington at the Center for Community Change, Bread for the World, and
on Capitol Hill. And he has really done some amazing work making people aware of innovative
options for access to capital. Jose, thank you.
Thank you for that, Bill. I really appreciate it. I know the past couple of years, you all
have heard me talk about lending circles to no end. But this is the formal presentation
of that. So, please, thank you for indulging me and
learning more about our work. So the Mission Asset Fund, we are a non-profit
organization. We are working to help create a fair financial marketplace for hardworking
people. We work with low-income families to help them become visible, active, and successful.
We do try to help them realize their full economic potential. You know, soon after starting
our work in San Francisco we realized that the problems, the barriers and the challenges
that our clients in San Francisco are facing were not that unique.
In fact, you know, they were the same problems that low-income families across the country
face, families that also lived in the financial shadows.
I don’t know if you can read the statistic there, but we found that they were largely
invisible to the credit markets. Reports have tried to gauge how many people actually are
invisible. But it kind of goes from 54 to 60 million individuals are considered invisible
to the credit markets meaning that they have no credit score or have too thin of a credit
history to generate a score. And without that they can’t buy — you know, can’t get loans
to buy cars. Can’t get loans to start businesses, and in many cases without a credit history
they can’t even rent apartments or even get jobs. And they are largely stuck.
The most recent survey at Consumer Finance, and I’m sure you all know, they found that
workers in bottom quintile of income distribution actually saw an 8 percent decrease in their
income between 2010 and 2013. Workers in the second to last quintile fair a little better.
They only saw a 6 percent decrease in income during the same time period. And they really
are strapped. You know, we found, not just our client in the mission in San Francisco,
but really for people living in the shadows across the country, they’re really strapped.
Recently or earlier this year the U.S. postal office, they issued a white paper I’m sure
you all have read. But I was really startled by their calculation where they found that
financially underserved families were actually paying like 9.8 percent of their income to
financial services. That’s on fees and interest on high-cost loans, payday loans, auto title
loans, and high-cost check cashers, et cetera. I mean, just imagine 10 percent of their income
were being used to spend on financial services that you and I would recoil at paying for
such amounts. So there are people in the shadows and the
way we describe them are largely people that invisible to the credit markets, that really
are stuck, you know, in their income generating ability and they really are strapped because
of the high cost products that they are being offered. And so like millions of people across
the country, you know, we found that our clients, you know, were facing these barriers to what
we now call middle-class financial products and services. And consequently because of
that, you know, that was stunting their economic potential. But we also, you know, in realizing
their — or being aware of their challenges that they face, we also recognize that they
actually had something of significant value, a time-honored tradition for our clients.
They had a time-honored tradition of coming together to help each other overcome life’s
challenges. Immigrant communities have a rich tradition
of coming together in groups to lend and borrow money with each other. In Mexico they call
these tandas, throughout the Caribbean they call them susus. All throughout Latin America
they call them cundinas and they come by many, many different names. Academics call this
activity rotating savings and credit associations or RSACAs. We call them lending circles just
to be, you know, cool. But it is exactly the same activity.
And this activity is common and prevalent the world over. You know, people all over
Asia, people all over Africa participate in such groups and they’ve been doing this for
many, many, many years. In fact, I just read a report that was published
by the Federal Reserve Bank of Philadelphia that actually found evidence of such activity
in China as far back as 200 B.C. Now, whether they were exactly the same form as we know
them today, I’m not sure, I wasn’t there, but by the idea of people coming together
and pooling resources to help each other out, you know, it’s a tradition that goes way back.
In fact, I said that lending circles, you know, was peer to peer before peer to peer.
Lending circles were, you know, crowd sourcing before crowd sourcing. Lending circles were
in fact credit unions before credit unions were credit unions. This activity is common
and is widespread and has been with us forever. But because — but because it’s informal,
it’s amongst groups of people that sort of agree to pool each other’s money is really
invisible to the financial systems. And that’s where our program comes in.
The way the lending circles traditionally work is like you can imagine a group of ten
people agreed to pool $100 on a monthly basis and all of a sudden within those ten people
you have a thousand dollars. And then on a monthly basis, you know, somebody agrees to
take that thousand dollars and they do that in rotation until everybody has a chance at
taking a thousand dollars. So that ten people they all put in $100 on a monthly basis for
ten months, they generate a thousand dollars on a monthly basis and then somebody takes
the pot on a monthly basis and for ten months. So that’s the traditional sort of form of
how lending circles work. Again, but despite the fact that they’re common throughout the
world, you know, this activity is largely invisible to the financial institutions because
they’re informal. What we are doing at MAV is basically formalizing
the activity. That’s what we’re doing. We’re taking what people are already doing with
their money and formalizing by having people sign a promissory note, a legal promissory
note, with terms of them agreeing and making payments on time, and then receiving the loan
distribution at their turn. And then this act of signing a promissory note is what makes
it visible to the financial institutions where it allows us to then service those loans and
then report the payment activity to the credit bureaus. And then through that payment — through
that reporting to the credit bureaus, is what allows us to actually bring a significant
value to them. And we also provide them with financial education and training so that as
we get them visible in the financial marketplace, and particularly in the credit markets, they
actually know how to best navigate that financial marketplace in a way that is actually impactful
for them. The level of impact, just by us again taking
what they’re already doing with the money and formalizing has been astounding. We did
a study — San Francisco State University actually did a two-year study of our work
and they found that on average we were able to increase people’s credit scores by 168
points. Mind you, about a third of the people that started the program started with a credit
of zero and then within ten to 12 months they go from zero to 600. So on average people’s
credit scores actually increased by 168 points. Ninety percent, you know, were able to establish
a credit score within 12 months. And also more impressive or all was that people
were actually able to decrease their overall debt by over $1,000. Again, this is numbers
that we were able to use by tracking people’s credit reports. And so we were able to sort
of see the decrease in real terms. And since we started the program, we’ve actually managed
to manage close to $3 million in loan volume. Again, this is people’s own money, not our
monies, not venture capital monies, not some investors’ money, it’s like people’s own money
that we’re managing. And really interesting, I want to kind of
show you how the credit scores how we were able to move the curve in some way that about
26 percent of our clients, you know, started with zero or less than 300 points and then
within a 20-month period we actually saw a 15 point decrease in clients in that category.
And then if you see the number of people in the prime credit scores, those are folks that
are 680 or above, actually saw an increase of 18 percentage points more — people in
the prime credit score category. Now, what does this mean? This means a lot. You know,
it means a lot for people that are in the financial market looking for loans.
Just consider for example somebody that is actually trying to get an auto loan. I did
a rough calculation and tried to compare what the difference is of somebody with a 720 credit
score would pay to somebody with a 650 credit score would pay and the differences are significant.
You know, they would actually pay — somebody with a 720 credit score actually would save
$1,600 on interest and fees over the life of a three-year loan a $1,500 auto loan. And
so that’s $1,600 that the people are able to keep in their pockets, you know, money
they are able to use to pay for other life expenses like buying food, paying rent, or
even saving it. So instead of actually, you know, taking their money out of pockets and
going to lenders, you know, we are actually able to keep more of their hard-earned money.
Now, this is just not math. And actually we are a part of a group called Credit Builders
Alliance that are based here in Washington, D.C. And we stand on their shoulders. They
actually pioneered this work of credit building about seven years ago. The founder of the
organization, Vikki Frank, I give her all the credit in the world, because she really
did found a way to help nonprofit organizations to report to credit bureaus. So I give her
all of the credit and thanks for her work. The Credit Builders Alliance, what they are
doing is actually essentially bringing nonprofit organizations and giving them a way to report
to the credit bureaus. They have a group of close to 400 nonprofit organizations are part
of our members and about 130 or so are actually reporting to credit bureaus through CVA and
then the rest are accessing credit histories to use as educational tools for their client.
So within this growing field of credit building, there’s a host of different organizations
actually being very innovative in their program services and I want to highlight a couple
for you. There’s a group called LISC in Chicago that is also partnering with Justin Peters.
They’re in St. Louis. They actually developed what they call twin accounts that actually
was basically structured by allowing sort of a credit building loan that you get the
distribution and then they put it in a safe account. And as people pay into that account,
they get — those payments get reported to the credit bureaus. And once they completely
pay the full loan payment, then they get that distribution at the end. And then through
their partnership they’re actually able to do it all throughout their Midwestern region.
Similarly — I’m trying to click here, sorry. Can you click?
Oh, there you go. There are other entities that are not just micro lenders, but they
are credit unions, and even a bank. Key Bank has a loan assist program that is similarly
structured where they allow loans for up to $3,500 where a person that gets onto the product
that the value or the distribution of the loan kind of is saved in a lockbox and then
as a person makes payments towards that loan, those payments get reported to credit bureaus.
Now, Key Bank and Self Help they don’t report through Credit Builders Alliance, but I think
I wanted to highlight their work because I think they are also responding to the market
need for more poor programs or products that actually help people build or improve their
credit score. So I’ve been really happy to sort of see, again, innovation not just with
the non profit world like in the Justin Peters, but also to sort of see other banks like Key
Bank following suit and creating programs to actually help people break into the credit
market. Next slide.
Experian just recently did an analysis of all the credit builder alliance data that
was reported to Experian over the course of two years, from June 2012 to June 2014 and
is really dramatic to sort of see like all of the data that went through CBA of all those
130-ish organizations they saw that 58 percent of borrowers actually increased their credit
scores over the course of those two years. There was 5.5 percent more prime borrowers,
you know, at the end. And there were 5.3 fewer subprime borrowers because of this work. And,
again, this I was elated to sort of see this particular graph because not just substantiated,
you know, our work at the Mission as a fund, but as a field, as a network of different
organizations where we actually are seeing similar positive effects of our work.
So what does this mean for us? As we were doing and expanding our work in California,
we were able to introduce or sponsor a piece of legislation called SB896. We introduced
it — well, Senator Correa introduced it for us earlier this year and it went through the
legislative process, you know, without any opposition. There was like hardly — and there
was zero votes against it. And Governor Brown just signed the bill into law in August 15th
of this year. And this particular law basically does is it provides nonprofit organizations
and encourages nonprofit organizations providing more credibility in loans. I think this is
the first state that’s actually raising credibility as a strategy, as an approach for good. And
that’s actually encouraging by removing regulatory hurdles of doing more and more of this particular
work. So we’re very happy and excited to have seen this because, again, it sort of marks
that this approach has to be sort of lifted up and encouraged across other nonprofits.
And then more significantly the aspect of the bill is that it actually recognizes that
nonprofits have to partner with each other. One of the interesting things about being
a lender, a finance lender is that there are some restrictions in originating loans in
your place of business only. And so for nonprofit organizations that are — that we actually
do like to partner with each and work so that we can lower our administrative costs and
whatnot and we couldn’t have done that if we had followed the typical lender license
regulations. This new approach actually encourages more partnership by reducing that and encouraging
more of the partnerships across the field. So, again, we’re very excited to have participated
in this particular — and it’s a marker in the growth of the credibility and field.
I think nationally and I love this graphic, I did not make this graphic, I saw it on the
Internet and I loved it. It’s sort of a picture of sort of like a superman with a CFPB logo
on his shirt, for those of you who can’t see it. But I think, you know, this is where the
CFPB actually does have a role to play in helping to recognize credibility as a pathway
out of poverty. It’s something that we need to sort of think about and learn about and
actually study it further to sort of see what other regulatory issues or concerns that we
need to sort of address so that we can do more of this work across a country. And really
to also figure out how as a regulatory body to leverage the networks of nonprofits that
are being created, you know, through this new field that is burgeoning up.
And I also would like to sort of stress that, you know, I think this is a way where nonprofits
really have shown their knack for innovation and that I really do think that we should
encourage that by kind of creating sort like a project catalyst like initiative but really
focused on nonprofits and what it is that we’re doing on the fringes of the financial
system to sort of see what it is that we can learn from their work and figuring out how
can we actually lift up the work that is happening. So I want to sort of throw those ideas out
because I think, you know, at the national level there’s definitely something that we
could learn from what’s happening in California, not just with math, but through the network
or organizations that are participating, Credibility Reliance and the like. So I’ll leave it at
that and open it up for questions. Thank you, Jose. Great work. Steve, did you
have a comment? Yes, this is a fantastic program obviously.
And I guess the question for you is, what’s one of the key barriers for just mission asset
fund to take this and go more broadly? Is it — a lot of this is reliant on trust and
just being local in your community to get the groups to work. Is it state regulation
that’s a big issue? It’s not necessarily access to capital because that’s being provided by
the folks. What do you see as like maybe the one or two thing that keeps a single organization
or just a couple from really expanding this? Well, this is an interesting question because
it actually — you know, technology was one of the first barriers that we had to overcome.
Because in managing and servicing loans, you know, you have to have a servicing system.
And we couldn’t and I thought of going to Best Buy and buying one of those servicing
softwares off the shelf and they don’t have it.
I asked them, I said, what about this stuff. They had no idea what I was talking about.
So basically what we had to sort of create our own platform, you know, to do all this
massive amounts of information and data in a way that is responsible and adhering to
all the standards of the industry. So we did that and we overcame that. And then once we
did that, we then are allowing our partners to access our system through partnership agreements
to sort of like a franchise agreement. And so that was one of the things.
But interestingly, about the regulation is that in California and, you know, the bill
in California that we passed through this year it actually sort of codified an opinion
of the Department of Business Oversight basically saying that, you know, entities that were
providing zero interest loans weren’t deemed to be in the business of lending and hence
were not required to getting a lender’s license. And so we actually used that opinion to sort
of say, well, okay, we’ll do a zero interest loan with zero fees, you know, because for
us the point of it wasn’t to lend money. The point of it was to use what they were doing
to get them into the credit markets by reporting to the credit bureau. So that was the value
that we were providing. So we took that notion, we codified it in
California, but now we need to sort of figure out, is that going to apply across the country.
And so we are holding to the idea that a zero interest, zero fee loan, you know, that we’re
not going to be a lender across states, but we’re in a sense servicing those loans that
people are doing at the bottom rung. And then the third thing, you know, of course,
funding for a nonprofit is very different than funding for a venture capital organization.
You know for us in a scale we can’t go to a venture capital and ask for millions of
dollars so we can open up offices everywhere. You know, for us it’s really about how do
we use the grant money that we have available to us and form strategic partnerships with
other nonprofit organizations. So that’s something that, you know, it kind of explains sort of
our approach moving forward. But we’re also, you know, in California, with the bill there
we also want the states to recognize the value that we’re creating. We’re creating a better
borrow, you know, people that are more financially secure and people that are not going to be
using state services a much. And so the state at some point is going to have to support
our work as well. You know, but the issue there was that, well, even if they wanted
to support our work right now, they didn’t recognize our work.
I mean, if Governor Brown came to me and said, “Okay, Jose, here’s a million dollars from
state coffers to do more work.” He wouldn’t know how to give me that check. He wouldn’t
know, well, what department, or what office, or who’s going to apply because there is no
form to be had where it say credit building anything, right. And so this particular bill
is sort of starting the conversation with the state government to sort of say, look,
this work is valuable and is very impactful. And at some point the state government is
going to have to sort of support the expansion of this.
So those are the three sort of barriers to sort of scale. And then we’re sort of addressing
them all in tandem. But this bill is actually going to be helping us in the funding, you
know, in the future. Jose, you made great strides in making invisible
people visible. And improvements in credit scores is certainly impressive. I’m curious
though, is the traditional financial sector recognizing the credit circles as a legitimate
indication of ability to pay and handle debt. Are you looking at it as a less than type
of credit or are they giving it its due? Yeah, so that has been a fundamental point
of all of our work is to basically say that, you know, our clients are not financially
illiterate. They’re not less than. They’re not pobrecitos this, pobrecitos that, they
actually are savvy that they’re managing their money in ways that we don’t even recognize.
But we wanted to sort of highlight and lift them up as being bona fide financial activity.
And then so what we did was through the process of signing the promissory note and legal document,
we sort of highlighted as this is a loan. The people are agreeing to make payments on
time and they agree to take the distributions at their turn, and then we as a servicer are
the ones that are managing all that activity and then reporting it as a consumer, unsecured
loan. So it’s going directly to credit bureaus through our partnership with CBA. So they
are recognizing that. Now, we didn’t go march down, you know, the
credit bureau’s office and say, you have to do this. It’s more like, look, here’s what
we created. And it will give you data that’s actually helping them rise. Like now they’re
seeing more and more individual and now they can turn around and take that information,
and of course sell it to the different sort of vendor. So this is an activity that is
actually good for them. It’s also good for banks, you know, because we’re extending the
pool of eligible borrowers for them to actually engage. I mean, I think we’ve heard time and
time again from Josh that, you know, this is — the problem with a thin file is actually
a huge problem for banks to actually know how to engage. And so we’re trying to thicken
that file by recognizing what people are already doing. So we hold very firmly that this is
bona fide financial information. This is not less than. This activity has been around for
a millennium, 200 B.C. It’s like before Christ was walking around town, right?
So this is something, just because we’re, you know, blind to it doesn’t mean that it’s
less than. And so I take that, you know, very seriously. And this is why we want you to
formalize it. That’s why, you know, having Governor Brown sign that piece of legislation
which is such a seal of approval that the state government is sort of putting their
brand on it which is really, really — you know, it matters a lot to me personally and
to all of our clients as well. Thanks for doing the presentation. I heard
you talking about lending circles, but this really makes me understand, you know, how
proud we can all be of your work. It’s amazing stuff, you know, the way you incorporate asset
building with credit building at the same time, it’s just phenomenal.
I had two questions. The first one was, that’s a very cool logo, but have you considered
an animal, maybe a dolphin or something like that?
I was thinking about a crab. Just something for you to think about.
You know, Dolphins are social. The second question I have is, in the process
of doing this work, what have you learned about what holds other factors that hold people
back in credit building and credit rating. And, you know, some lessons from the ground
about, you know, what really matters in that space with this clientele?
Yeah, no, that’s a great question. And I think, you know, particularly when we’re talking
about our communities that we serve in San Francisco, you know, sometimes they just need
somebody to talk to. They’ll sort of say, give me the true rules of the road here. You
know, the rules of the road about how to manage this particular type of a debt. And so financial
conditions actually have been key. Frankly I started to work thinking the financial condition
was not going to be important. But then later I actually realized that actually was very
fundamental to helping people. So the product of building credit and managing and reporting
is really valuable because we’re helping people build their credit. But giving them a chance
to sit down with one of our staff to sort of say, okay, here’s my situation, what can
you — give me some guidelines or some general principles so that they can actually act accordingly.
And so that’s really — it’s been sort of like a simple intervention in that particular
sense. So people need to know that we have pain. Time is actually very meaningful. It
is very important for their overall financial situation.
Just a basic question. I was wondering if you can give us some color about, are the
accounts at Mission Asset Fund or are they at an insure institution or credit union,
or how does that work? Yeah.
And then you mentioned a franchise thing. Yeah.
Like, what kind of investment or what kind of grant funds?
Right. So basically we require all of our clients to have a checking account. And then
we — they can have a checking account at whatever bank of their choosing. So we don’t
— it’s not within us. So when they get into the checking, that’s how we get enbanked,
essentially, right. And then we manage all of the payments through the ACH system. And
so then we collect all that information and we record it and that’s what we sort of report
to the credit bureaus. So they don’t have an account — I mean, of course, they have
an account with us, but it’s not a checking account. And we have a record of them, and
a record of their transactions and we keep all of that. And we use sales force as our
data, you know, backend systems. And because we actually have that incredible
platform through sales force, we were able to create what we call portals where other
nonprofit organizations are able to log in and then access the system that we created.
And so that’s the franchise. Because essentially they’re accessing the system that we created
and then we just manage the backend for them. And so we’ve been able to partner with other
organizations and essentially implement lending circles in their communities. And so we’re
working with the Chinese community, Korean community, Pilipino community, it really has
worked, you know, across a lot of different groups around the country.
Jose, to what extent do your clients stay with you over a long period of time — Yeah.–
and borrow multiple times, to what extent do they move on and move out? And do you keep
a relationship with — even if they’re no longer borrowing from you, or with you?
Yeah. The intent for us is to graduate them out of MAF. So it was essentially like about
60 percent of our clients just do one lending circle with us and then they graduate out.
About 25 percent of them, you know, do a second lending circle, and about 10 to 12 percent
do a third lending circle. But the intent of this is to say now that
they have a credit history, they have a credit score, we want them to go into the financial
marketplace and then get the loans from the credit unions, from the banks to get the cars,
to buy their homes, to invest in their businesses because we’re not the lender, nor do we want
to be a lender, nor do we need to be the lender. We just need to be the initial conduit of
getting people that are completely in financial shadows and getting them into the financial
main stream. And so our intent and purpose is to kind of kick them out after two or three
lending circles and then find other people that we can help as well.
So we don’t have the incentive of keeping them in house. You know, we don’t want to
be their financial service provider for life. We actually want them to go to financial institutions
that actually have the products to actually engage with them because we just want to be
the training ground for them. So I, in jumping into this conversation, one
of the things I find I’m always looking for is how to build a better financial ecosystem
to let people have access. And I — it’s exciting to see that this data is getting into the
credit bureaus. I think the Bureau here did work early on, as they put their arms around
the credit bureaus as somebody to watch. I think — I don’t know whether we have — I
mean, I guess I would encourage us to have a discussion around how more things like this
could help people, you know, instead of what the credit bureaus have done to make it difficult.
You’re helping find ways to improve. I was first a credit granter in the mid-90s
at Sears and we’re doing credit granting about the same way we did it 20 years ago. So I
think there’s been a lot of talk in the last five to ten about alternative sources. I think
the Bureaus keep talking about it. Maybe some of you know if it’s really real. I’ve gotten
to know a company named Ecredible who thinks they’re about to get the big bureaus to do
more with bill payment data. Uh-huh.
And to me it’s like, why can’t we get our arms around this? And I know there’s a lot
of big data companies talking about it. But I think what can we — you know, on the build
a better business model with our ability to influence things, how can we — you know,
I’d love to continue a dialogue. I’m not even sure, is it the Card Committee that’s in charge
of credit reporting now? Which committee? I don’t know whose —
I think it’s our, actually. — Card? Okay. It’s our committee.
But I think it should be something we — how do we help — have the information that’s
out there be embraced more by the group that — you know, it’s a small group that we rally
have to influence. I do know that there’s a lot of innovators trying, and I think there’s
a lot of credit grantors like the big card issuers, or the big loan issuers that would
like to reach them. But somehow we just can’t seem to break the barriers. If anybody else
would like to chime in or — I certainly will hope on the Card Committee I can help us create
that dialogue better. I wanted to follow up on what Prentiss raised
about the barriers that individuals faced. And Jose, first of all, congratulations on
a great product and program. Thank you.
But you mentioned the huge declines in income for the people in the lowest quintiles. I
think that’s really significant and I know it’s something Director Cordray mentioned
last year. In Global Initiative there’s a relationship between low wages and paying
high cost credit. And I just wanted to mention this growing regulation of the overlap between
our financial justice issues and workforce justice issues and mention that there’s this
recent study that the Ford Foundation has funded called the “U.S. Financial Diaries”
and some of the preliminary research findings that came out of that study of hundreds of
families across the country was that it’s not just the low income, but the volatility
of income that’s particularly troublesome for families making ends meet and the lack
of advance notice, the scheduling issues for people who are juggling two and three jobs.
And I think as we work on the financial side, we also just need to be aware of how those
workforce issues are affecting people’s ability to make ends meet and driving them into high-cost
products and that there are other things we need to be doing as a society around fair
wages and opportunities to have benefits and appropriate scheduling that would help the
people we’re trying to serve smooth things out more.
I completely absolutely agree. I think credit is one piece of a bigger puzzle that, yeah,
I’m all for increasing the minimum wage, I’ll all for increasing access to better services.
I think what we’re trying to do is sort of, let’s start the conversation here, and then
we can have, you know, expand the conversation as we sort of kind of get to know people further.
And, to engage them and to sort of say, the way things work here, you know, having a promissory
note, having a commitment of paying things on a monthly basis, you have to do a good
thing. And then we’re going to report that to the credit bureau so you can get credit
for that. You know, and people actually followed through with their commitment. Our default
rate is like .4 percent. You know, it’s like unheard of in the financial marketplace because
people have a sense of they want to improve their financial lives, but they just need
a little bit of help. They want that, who can I trust to make that happen? And I think,
you know, when nonprofits are going to kind of get into that equation, you know, we come
with a lot of trust capital, if you will, that people are sort of responding to that.
So I think there’s a lot more to be said about how do you build the financial security. But,
for us, we just sort of, well, let’s start here and then continue the conversation forward.
I think Don, and then we’ll wrap up with Joanne. So Ellen stole my first question. So my second
question is, I’m kind of curious to know if MAF or CBA has done a state-by-state scan
to figure out the need for similar legislation like 896 in other states?
Great question. No. August 15th, that’s when they signed it into
law. Interestingly — yeah, the next week, and then I got a call from a state representative
in Washington state that wanted to learn from it. But I think, you know, that’s something
that we need to start looking into trying to figure out, is this a state-by-state thing
or is this something that we can figure out how to get it in some regulatory assurance
in some way that we can kind of do it, you know, across the board. I mean, again, right
at this moment we’re sort of holding to zero interest, zero fee argument so that we can
clearly articulate to regulators that our intention is not to be a lender. Our intention
is not to swindle people. We want to be helpful and this is just how we’re making it happen.
I was going to defer my time to Gene, but, okay. Jose, I just wanted to say thank you.
It’s just a comment and you’ve shown by this that this is a credit ecosystem and it involves
both the access to credit and the repayment of credit. The success here that I see from
my perspective is the repayment and how you’ve managed to educate consumers to do that and
the importance of that. And then get them out into the regular financial services world
and understand how important it is, is terrific and I really commend you very much.
Thank you very much. Yeah, I want to echo Joanne’s comments too.
This is fabulous work that you’re doing and I want to touch on very briefly your emphasis
on credit score improvement because that’s clearly so important. But it also kind of
alludes to Jane’s comments is that you can see credit score improvement, but that does
not necessarily translate into a better opportunity. I think it partly relates to how the largest
financial institutions actually use that information. And we’ve seen some innovation with the credit
reporting agencies, how they’re going about their business, but I think there’s been a
disconnect between how some of the largest financial institutions whether they adopt
those changes and there’s a very long lead time in getting them to do that. So, I think,
you know, maybe the CFPB can play a role in helping some of the largest financial institutions
understand the value in doing that, particularly the value to the consumer for, you know, having
a professional look at their credit scores. Great point. And thank you for these insights
and comments. And Jose and Jennifer, really appreciate your enlightening presentations.
Continue to learn from all of you. We’re going to break now for lunch and the
meeting will resume at 1:45 p.m. Thank you.

Paul Whisler

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