This is the first installment of a series of blogs on Innovations in Asset Building.

The Problem
Payday loans are rampant in Texas and payday lenders consider Texas a profit center for their products. Payday lending is a problem in Illinois too as lenders regularly charge up to 400% APR. IABG works to protect consumers from predatory products.

As Payday lending reform in Texas is unlikely to occur in the near future and 50-75% of borrowers were not able pay back the loans on time, consumer advocates wanted to create a new small dollar loan option to balance out the two-sides of the transaction so both lenders and borrowers are successful.  Several key consumer advocacy organizations (RAISE Texas, Texas Appleseed, and the Texas Association of Community Development Corporations) sought to provide Texas communities with access to small dollar loans by expanding an employer-based small dollar loan program created by the Rio Grande Valley Multibank CDFI (RGVMB).

Community Loan Center’s Affordable Small Dollar Loans
The Community Loan Center‘s (CLC) Affordable Small Dollar Loan (SDL) program uses employer-based outreach to issue loans to employees through an online loan origination and servicing software being developed by the RGVMB.  As most operations are online, the reduced overhead means that they are able to provide an SDL at a safe and profitable interest rate, currently 18 percent with a $20 origination fee.

To expand the program statewide, the advocates are recruiting a network of nonprofits that have the capacity to offer the program in their areas. The local non-profits will contact employers in their community, explaining that at no cost to the employer, employees can gain access to safe SDLs. Employers have been responsive because when an employee can’t pay back a payday or auto-title loan, as is most of the time, employers are often contacted by the lender and debt collector to either deduct payments from future paychecks or coerce the employee to pay. Employers often see that through working with CLC their employees are more financially secure. Additionally, employers do not have to deal with the hassle of debt collectors calling about their employees.

Model Innovations

• Scalable: In the financial products world, consumer advocates often find themselves on the side of pilots that would require large investment of funds and commitment by the organizations, community, and political leaders to scale up. Initially funded by Citi to help with startup administration costs, this program grows, community by community, without a lot of investment required to branch out into each new community. CLC employs local sales people to reach out to the major employers in the community; giving a new region access to affordable small dollar loans.
• Sustainable through Low Overhead:  As CLC has no need for a storefront or a large staff to directly interact with borrowers, the costs for running this program are low. Combined with an 18% APR rate on the small dollar loans, the program initially broke even within the first year.  In the 17 months of operation the pilot program issued 1,365 loans through 26 employers that employ a total of 3,135 employees. It is designed so each new community should be able to break even within two years.
• Credit Building Loan: Unlike payday or auto-title loans which only file credit reports on collections on defaults, on-time payments for this loan are reported to the credit bureaus as would a loan at a bank.

Future of Sustainable Small Dollar Loans
“The program can only grow if it’s sustainable,” said Matt Hull, Executive Director of the Texas Association of CDC’s. “Doing the research to find out the kind of model you want to pursue, and focusing on cost containment and generating revenue is how you can make it sustainable.” The CLC continues to gain traction on the ground and will provide more communities in Texas with access to small dollar loans beginning in early 2014. If the initial expansion phase proves sustainable, they plan to expand into smaller communities in Texas and eventually into other states through partnering with statewide asset building organizations and nonprofits. Furthermore, they are investigating how to add asset building components such as voluntary savings to the program over time.

Beginning October 1st, 2013 Illinois residents will be able to purchase health insurance through the Illinois Health Insurance Marketplace. For those not covered by Medicaid, there are several ways to pay for health insurance. The federal government requires all health insurance companies selling on the Illinois Health Insurance Marketplace to accept the following payment methods:

• Checking Account – Electronic Fund Transfer
• Checking Account – Paper Check
• Money Order
• Cashier’s Check
• Prepaid Card

The accompanying guide, “How to Pay for Health Insurance on the Marketplace,” is a resource for consumers, navigators, financial education providers, and other direct service providers to help consumers understand their payment options and choose the one that fits them the best. This guide details how consumers may use each payment method, their estimated monthly costs, and helpful hints for each method. It also outlines what consumers should look for when choosing a checking account and various payment methods that may be accepted by participating health insurance companies, but are not required.

IABG encourages the use of payment methods that help facilitate continuous coverage, such as automatic deductions from a checking account.

Fore more information on how ACA implementation effects the unbanked please see our blog series, Affordable Care Act & The Unbanked: Part 1 & Part 2.

UPDATE:

Get Covered Illinois, the Official Health Marketplace, opened its virtual doors on October 1st, offering a new way for the 1.7 million uninsured in Illinois to get covered.

IABG, Everthrive Illinois, and Heartland Alliance co-hosted a webinar on October 28th titled Connecting the Unbanked to ACA Coverage. Presentation documents and a recording of the webinar are available here.

Public benefit programs, including Temporary Assistance for Needy Families (TANF), have historically included an asset limit. An asset limit prevents applicants with savings or other assets exceeding the limit from receiving assistance. Asset limits force families in need to spend their limited savings before they can qualify for assistance, leaving them vulnerable to financial emergencies and preventing them from moving along the path to financial security. Asset limits also discourage aid recipients from saving–sending the wrong message to families. Many states have eliminated the asset tests for their Supplemental Nutrition Assistance Program (formerly Food Stamps) and/or their medical assistance program, but most have retained their asset test for Temporary Assistance for Needy Families (TANF). In addition to achieving the policy goal of encouraging savings, states can realize significant administrative savings by eliminating their TANF asset limit.

The webinar will feature advocates from Hawaii and Illinois who led successful campaigns to eliminate the TANF asset test in their respective states this past year. They will share:

• Effective messaging
• Advocating to the Governor’s office, Departments, and Legislators
• Responding to opposition
• Other lessons learned

Panelists will include:

• Brent Kakesako, Executive Director, Hawai’i Alliance for Community-Based Economic Development
• ‘Auli’i K. George, Public Policy Advocate, Public Policy, Office of Hawaiian Affairs
• Lucy Mullany, Senior Policy Associate, Policy & Advocacy at Heartland Alliance, and Coordinator, Illinois Asset Building Group
• Dan Lesser, Director, Economic Justice, Sargent Shriver National Center on Poverty Law
• Dory Rand, President, Woodstock Institute

Tuesday, October 22, 2013 CST
1:30-2:30 p.m.

REGISTER NOW

Follow the webinar discussion and submit questions ahead of time on Twitter using the hashtag #assetlimits.

Add to your calendar

IABG testified at a public hearing in Chicago for the lllinois Commission on the Elimination of Poverty on September 3rd, 2013. The testimony below, on behalf of our coalition members, focused on seniors living in poverty and the need to expand access to retirement savings accounts.

My name is Lucy Mullany. I’m a Senior Policy Associate with Heartland Alliance for Human Needs & Human Rights. I also serve as the Coordinator of the Illinois Asset Building Group. IABG is a statewide coalition made up of over 100 community based organizations and financial institutions. We are committed to expanding access to the tools people need to build financially secure futures for themselves and their children. One of these vital tools is an employment-based retirement savings account.

Almost half of all Illinois seniors are economically vulnerable. Too many who want to retire in dignity lack the savings to do so. They struggle to cover their basic expenses such as housing, utilities, food, and healthcare. Without sufficient savings for retirement, more and more workers are retiring into poverty and overelying on social security.

Social Security benefits were intended to supplement a worker’s own retirement savings. However, for nearly two-thirds of elderly beneficiaries, Social Security provides the majority of their cash income. For more than one-third it provides more than 90 percent of their income. For one-quarter of elderly beneficiaries, Social Security is the sole source of retirement income.

This is not sustainable for individual retirees, families, and for our state.

By 2050, one in five residents will be a senior. When we look at the current workforce, we see that these workers are ill prepared for retirement. According to a study by the Woodstock Institute, 2.5 million Illinois private-sector workers (over 50%) have no access to an employment-based retirement savings account. Low-income workers and workers of color are even less likely to have access to this important savings tool.

We need to provide all workers easy access to a retirement savings account. An Automatic IRA Program, introduced in the Illinois legislature this past session, offers workers who are not covered by any form of employer-sponsored retirement plan the opportunity to save through regular payroll deposits. The employer’s administrative functions are minimal and under this proposal involve little to no out of pocket cost for business. Likewise, the funds invested in these accounts would be managed by an outside investment firm with minimal administrative duties for the state.

Low-wage workers can save. In fact, when given the opportunity to save, they often save at a higher rate than higher wage workers. The barrier here is access. If we do not take action to expand access to retirement savings options, “too frail to work but too poor to retire will become the new normal” for millions of elderly residents. On behalf of IABG, I ask that you consider the Automatic IRA program as a simple and effective solution and I thank you for listening to our testimony.

Hey All! My name is Carl Wiley and I’m very excited to be joining the Policy and Advocacy team this year! I wanted to quickly introduce myself and give a bit of background as to who I am, what brings me to Heartland Alliance and IABG, and what I’ll be up to this year:

Q: Where are you from?

A: I was born and raised right here in Chicago. I grew up in the Wrigleyville neighborhood and despite the challenges we Cubs fans face, I count myself among them.

Q: What are you studying?

A: Currently I’m on my third and final year at University of Illinois at Chicago Jane Addams College of Social Work. My concentration is in Community Health and Urban Development. I’m hoping at some point to use all my education, previous work, and current experiences with the Heartland Alliance’s Policy & Advocacy team towards opening a transitional living program for precariously housed youth.

Q: Why did you choose to be a policy intern at Heartland Alliance?

A: I’ve spent the past six years providing direct services to young people engaging in social services and I’ve always wanted to understand the policies at work behind these programs and services. I previously worked in Champaign, IL as a case manager, the Uptown neighborhood of Chicago as a drop in center coordinator, and most recently as an outreach specialist in several Southside neighborhoods of Chicago. My work has always been based on one-on-one or group settings and I feel that to be a really great social worker I need a foothold in both direct service and policy work.

Q: What are you looking forward to during your internship?

A: Policy work is still a fairly new area for me so I’m generally open to everything we’re working on. I think I’m particularly interested in the research we’re doing on the existing racial wealth gap and studying / tracking current and new legislation.

Q: What have you done during the first month of your internship?

A: So far I’ve published few blogs highlighting upcoming events and conducted research on the racial wealth gap, policies related to credit scores, and how the implementation of the Affordable Care Act will impact the unbanked.

Q: If you could have dinner with 3 people living or deceased who would you choose?

A: As football season is gearing up and my Fantasy picks are successfully locked in, I’ll move on to my next pressing draft; dinner company. I’d like to think I’d gather three big, influential, thinkers around some deep dish and talk about changing the world, you know… simple stuff. First pick would go to American philosopher and accomplished activist Dr. Cornel West. Second Pick would go to bring back famed comedian Bill Hicks and hear his take on the world ten years later. Third and final pick would go to former president Bill Clinton whose Global Initiative has pushed some big ideas around the world. Although these people are all from different backgrounds and beliefs I’d like to think they would have one heck of a conversation.

If anyone has any questions, comments, or can think of a really great addition to my dinner draft feel free to drop me a line at 312-870-4933 or cgwiley@heartlandalliance.org

It’s exciting to see the “light bulb” turn on as they begin to understand credit building as asset building, and how it allows clients to have higher credit scores sooner and faster and how simple the process is.
-Kristin Schell, Credit Building Manager

Justine PETERSEN Housing & Reinvestment Corporation is a Missouri not-for-profit 501(c)3 corporation with offices in St Louis, MO, East St. Louis and Granite City, Illinois. Named after the late Justine M. Petersen who helped hundreds of low- to moderate-income families purchase their own homes, Justine PETERSEN continues in her footsteps. They help families build financial security by providing credit building and financial education, homeownership preparation and retention services, and micro-enterprise lending and technical assistance.

A Unique Approach to Asset Building
Core to Justine PETERSEN’s mission is the focus of credit building as asset building. Pioneers in the credit building field, they have embraced credit reports and credit scores as a consumer’s number one asset to build other assets like homeownership, small business start-up and growth, and achieve financial stability. What sets Justine PETERSEN apart from many credit building organizations is their ownership of a Community Development Financial Institution (CDFI), Great Rivers Community Capital (GRCC), certified by the U.S. Department of Treasury. Through Great Rivers Community Capital they have been able to provide safe credit building products, which include creating and piloting new credit building models. To date Justine PETERSEN has:

• Assisted  4,300 households to purchase homes, accessing $345 million in safe, affordable mortgage loans
• Originated over $10.7 million in micro-loans to 2,400 micro-enterprises
• Opened 1,500 IDA accounts and facilitated 1,000 matched withdrawals for asset purchases

A Story of Impact
Ms. Hall came to Justine PETERSEN to increase her credit score, she had focused on paying off her debt and repairing her credit score herself but hit a plateau and wanted help after going through a short sale of her home.  From her first meeting with her credit building counselor, Ms. Hall reviewed the student loan and car loan debts contributing to her 580 credit score. Together they worked on crafting a personal budget and decided the next step was to open a secured credit card to continue to boost her score. She used the secured credit card for credit building instead of normal consuming by keeping the balance below $90 and making payments on time. In one year her credit score rose 60 points to 640. “Even the small increases in credit score can be a game changer towards behavior change in our clients,” said Kristin Schell. Ms. Hall was able to refinance her car loan through a local credit union from an interest rate of 17% to 5%, which will save her $6,300 over five years. Ms. Hall continues on her credit building path so her credit report and score will allow her to pursue another home purchase when she is ready.

Helping Other Non-Profits with Credit Building
In addition to innovating through new products and services, they have been training other non-profits nationally and in Illinois to adopt the same credit building best practices with their clients. This includes Local Initiatives Support Corporation’s (LISC) Center for Working Families, the Chicago Credit Building Coalition, and the Aspen Institute’s FIELD “Asset Building Through Credit” Program. Justine PETERSEN continues to expand its presence in Illinois having just opened up its Granite City location, and looks to help train other non-profits in credit building using their innovative model and services.