CFSI, a national nonprofit organization, provides leadership and new ideas on public policies that encourage and enhance underserved consumers’ access to financial services. To that end, CFSI seeks to advance federal financial services policy to spur product innovation and market competition, to address impediments to high-quality financial services access, and to bring greater attention to low and moderate income consumers’ financial services needs.
CFSI works with financial service providers, consumer advocates, academics, and policymakers to transform the financial services marketplace to help underserved consumers achieve financial prosperity. CFSI conducts consumer and industry research to develop a complete understanding of underserved consumers and the products offered to them. CFSI makes investments in nonprofits and for-profits serving low- and moderate-income consumers with financial products and services that are beneficial to consumers and sustainable for providers.
CFSI’s policy agenda focuses on several key areas:
• Engagement with federal regulators and legislators to expand the availability of safe and affordable financial products and services for low- and moderate-income individuals and families
• Identification and promotion of federal policies to address impediments that affect underserved consumers’ access to high-quality financial services and products
• Bringing policymakers’ attention to new financial capability strategies and financial products that deliver personalized, relevant, timely, and actionable information to consumers about their finances and financial decisions
• Outreach to policymakers about the financial lives and needs of low- and moderate-income consumers
The primary activities CFSI engages in to achieve its goals around public policy include:
• Developing financial services principles that enhance and expand low- and moderate-income consumers’ access to financial products and services, in both the bank and nonbank sectors
• Bringing policymakers’ and the media’s attention to critical issues related to low- and moderate-income consumers’ access needs and preferences for financial services
• Engaging key stakeholders, including policymakers, industry representatives, advocates, and nonprofits to inform CFSI’s work
• Researching and disseminating policy briefs, research papers, and other educational materials
On March 28, 2013 CFSI and the Hudson Institute Released Double Duty: Payments Cards as a Doorway to Greater Financial Health.
Electronic payments are growing by leaps and bounds, overtaking paper as preferred payment mechanisms. Governments at all levels have embraced this change, often not just encouraging a move from paper checks but even requiring it. Electronic payments have advantages for all parties. Governments lower the cost of distributing benefits. The payments industry realizes further economies of scale and greater revenue from wider use of the payments network. For individuals, electronic payments lower the incidence of lost checks and potentially improve efficiency and convenience.
Electronic payments 1.0 is a success story. Electronic payments spare government the cost of writing and distributing checks while delivering funds to recipients more safely and reliably. But electronic payment methods can do more—and defining “more” will be the next chapter in the story.
By far, most recurring government electronic payments, such as Social Security and unemployment benefits, are made via direct deposit. However, direct deposit does not work for people without bank accounts. Payment cards—prepaid debit cards with a 16-digit number, magnetic strip, and network logo—are an electronic option that does not need a bank account. When state and federal governments require recipients to receive their benefits electronically, those who do not choose direct deposit receive the default choice instead—a prepaid debit card. And this is where the next chapter begins.
Electronic government payments can serve as an entry into lower-cost, broader-function payment tools that support recipients’ financial lives. They can offer increased choice among financial services and a range of financial service functions. Above all, they have the potential to help people improve their financial health and capability, whether through access to more information or a transition to greater use of higher-quality, more effective services. The same systems that made electronic payment possible can also help people understand and plan their financial lives.
Download Double Duty: Payments Cards as a Doorway to Greater Financial Health below.
Vice President, Policy, Jeanne Hogarth, will be speaking at the National Community Reinvestment Coalition Annual Conference March 20-23. For more info, see the NCRC website.
Rachel Schneider, Senior Vice President, Insights & Analytics, will be speaking on a panel titled "Resilience and Rebuilding for Low-Income Communities: Research to Inform Policy and Practice" at the 2013 Federal Reserve System Community Development Research Conference. The conference will be held April 11–12, 2013.
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For more information see here.
Government Benefit Cards Can Open Doors to Banking System
by JENNIFER TESCHER
This month, the federal government will largely stop issuing paper checks for Social Security and other recurring payments. The shift to electronic payments has been a long time coming, with a campaign that started in the late 1990s and a U.S. Treasury Department that was ahead of its time. Today, all 50 states are disbursing most, if not all, benefits electronically.
While we have reached the end of the line for government checks, policymakers are just beginning to consider how to leverage government payments as an onramp to broader financial engagement.
Government opinion on addressing the needs of unbanked consumers is mixed. In a recent survey of state and local government decision-makers by Governing Magazine, 46% believe government has no obligation to provide financial services to the unbanked beyond the delivery of benefits.
Now that both federal and state governments have achieved the initial goals of cost savings and increased efficiency, it is time to place greater emphasis on how electronic payment tools can provide broader benefit for recipients.
Federal and state governments reach tens of millions of households each month, providing a range of benefits including unemployment insurance, child support, food stamps, cash assistance, disability benefits and retirement and pension payments. In January alone, 62 million people received $70 billion in Social Security and disability benefits. States pay out nearly $13 billion of food stamps benefits annually to 23 million households.
While the specifics vary by state and by benefit, recipients generally are given the option of either having funds directly deposited into an account of their choosing or using a government-selected payment card. Those who choose the government card are far more likely to be unbanked.
The quality of those debit cards varies widely, and there are few clear standards. A recent report by the National Consumer Law Center, for instance, evaluated 42 different state unemployment cards. Eighteen received a "thumbs up," 3 received a "thumbs down," and the rest were deemed neutral.
Government payment cards can be viewed as potential bank accounts waiting to be opened by people with the fewest quality opportunities to connect to the financial mainstream. For government payment cards to be part of the solution, policymakers should design them with three critical elements in mind: choice, reloadability and capability.
Choice: Unbanked benefit recipients have little choice about the payment card they are provided because governments generally enter into contracts with a single card provider. Moreover, some states make it difficult for consumers to have their benefits directly deposited into a bank account, effectively steering them to the state-provided payment card.
Policymakers should consider other ways to guide the development of high-quality products that increase marketplace innovation and competition and increase consumer choice. For instance, they could focus on setting criteria for product providers and enabling consumers to choose from the range of products that meet the criteria.
Reloadability: Today, government payment cards serve a single purpose – to deliver benefits. Cardholders cannot deposit money from other sources into their card accounts, making them of minimal use. Governments should be leveraging payment card platforms to provide recipients with a more robust financial vehicle.
Making cards reloadable raises a number of legal and regulatory issues, and increases the risks to providers. One possible intermediate step would be to enable a single government payment card to serve as a gateway to two accounts, one for government benefits and another for other funds. This would minimize the risk of improper garnishment of government benefits that arises when funds from multiple sources are commingled.
Capability: Most government payment cards provide minimal functionality beyond making purchases at the point of sale and withdrawing cash at the ATM. Yet we live in an era where technological innovations are spurring a new generation of money management tools and techniques that can deepen the customer experience and help improve financial well-being.
One of the most exciting developments on this front is the Treasury Department's decision to add a web- and mobile-based financial education hub to Direct Express, the default payment card for federal benefit recipients. Cardholders will have the chance to win cash prizes by engaging in financial education modules.
The effort, a partnership between the government, card issuer Comerica Bank, MasterCard, and technology start-up PayPerks, represents the kind of public-private collaboration that will be required to turn government payments into a teachable moment.
The first step, though, belongs to the government. Government benefits alone don't create financially healthy citizens and communities. Leveraging disbursement platforms to provide broader financial access and a more meaningful financial experience can turn government payments into a powerful strategy for community development and consumer empowerment.
See the original article here on American Banker.
Jeanne Hogarth, Vice President of Policy, CFSI is speaking March 1 at "The End of Cash" at the Center for American Progress.
Beginning in March 2013, nearly all federal payments, including Social Security, will be made electronically. Instead of paper checks, most recipients without bank accounts and direct deposit will receive their benefits on a government-issued prepaid card. This is part of a broader trend. Prepaid card use has already grown rapidly for payroll purposes, distributing state and local benefits, and as a transaction tool for people without bank accounts. Why are prepaid cards becoming so popular? What is the potential for these cards to build financial stability as an alternative to bank accounts? What are the pitfalls? Should prepaid cards and bank accounts have common regulations? Please join the Center for American Progress for a lively discussion of these issues with our distinguished panel.
Featured panelists:
Melissa Koide, Deputy Assistant Secretary for Consumer Policy, U.S. Department of Treasury
Jeanne Hogarth, Vice President of Policy, Center for Financial Services Innovation
David Rothstein, Policy Director, Policy Matters Ohio
Moderated by:
Joe Valenti, Director of Asset Building, Center for American Progress
To watch the event live, click here.
Jeanne Hogarth, Vice President, Policy (formerly with the Federal Reserve Bank) will be attending the Federal Reserve of St. Louis Research Symposium —"Restoring Household Financial Stability After the Great Recession: Why Household Balance Sheets Matter."
Summary:
America’s economic engine—its household sector—is sputtering. The common underlying vulnerability is widespread household financial instability: the inability of millions of Americans to meet their financial obligations, qualify for new credit, or play their traditional roles as consumers and homebuyers driving economic growth. This household financial instability was affirmed by the recently released Survey of Consumer Finances of the Federal Reserve, which showed that, overall, the median net worth of American households declined nearly 40 percent between 2007 and 2010. Particularly hard hit were younger, non-white and non-college-educated households.
Through commissioned papers, keynote speeches and a competitive call for papers, this symposium will highlight the critical role of household balance sheets in restoring household financial stability and national economic growth. Keynote speakers will include Michael Barr, former assistant secretary for financial institutions at the Treasury Department and current professor at the University of Michigan Law School; Christopher Carroll, professor of economics at Johns Hopkins University; and Federal Reserve Governor Jeremy Stein.
Click here for more information on the event.
CFPB Should Create Safe Haven for Innovators
The Consumer Financial Protection Bureau showed up in Silicon Valley earlier this month to announce a new effort to encourage innovation in consumer finance.
By JENNIFER TESCHER
Coming from a regulatory agency, the debut was nothing short of remarkable.
Speaking to an assembled group of start-ups, venture capitalists and financial innovators, CFPB Director Richard Cordray unveiled Project Catalyst, the bureau's effort to make good on the second part of its dual mission of consumer protection and financial access.
Cordray spoke eloquently about the importance of innovation in the lives of consumers, even while recognizing the recent economic harm caused in the name of financial innovation.
Banking regulators like to make positive mention of innovation, largely to placate the banks they regulate. Cordray made his remarks at the Computer History Museum, in a room filled with technology companies marginally regulated by the CFPB, if at all, and he backed up his words with action.
He announced data-sharing collaborations with three start-up financial providers – BillGuard, Simple and Plastyc – to understand how new approaches to financial services can positively shift consumer behavior. He also signaled the bureau's interest in working with providers to test alternative forms of product disclosure, particularly given how technology is changing the way consumers interact with information.
Project Catalyst is off to a strong start, and it will need a bold Act Two to keep up the momentum. As the CFPB fills out its innovation agenda, the agency should take on the most vexing challenges in consumer finance.
How do we solve the cash in/cash out challenge for cash-based consumers as money becomes increasingly digital? How do we increase direct deposit rates?
How do we encourage consumers to save, even small amounts, and, at the same time, make the economics of small savings work?
How do we extend credit to credit-challenged consumers at reasonable rates and in ways that don't trap them in debt?
How do we do business with consumers who have thin or nonexistent credit files? How can we leverage increasing amounts of social and other data to help consumers qualify for more and better products, on better terms?
How do we ensure that consumers understand the financial products in their wallets? How can we design products and experiences to nudge them toward optimal financial decisions?
Entrepreneurs and established firms alike are working on all of these thorny questions. The challenge is lack of clarity around the rules of the game. In some cases, the CFPB has signaled it will write new rules. In other cases, new products and approaches are not expressly addressed by existing regulations, making it hard for entrepreneurs and their financial backers to invest the time and money needed to build businesses.
There is only so much the CFPB can do to speed up the rule-writing process. Listening hard to innovators about new technologies on the horizon will be important to ensure that rules written today don't become obsolete overnight. But that alone won't ignite innovation.
The most important thing the CFPB can do to fuel entrepreneurial spirit is to create a safe place for innovators to try out new ideas. The CEO of tech start-up BillFloat, Ryan Gilbert, put it best when, during his remarks at the Project Catalyst launch, he suggested the CFPB create a sandbox for financial services experimentation.
Imagine if the CFPB set up a series of innovation labs, each one focused on solving a different consumer finance challenge. It could create something akin to an X Prize, encouraging companies to solve problems through competition. Or it could invite applications from both entrepreneurs and established financial companies and offer those with the most promising ideas a time-limited waiver or safe harbor for small, controlled pilots of products or features that aren't clearly covered by existing regulations.
The labs would need to be broadly inclusive given both the state of play in today's financial markets and the CFPB's own mandate to regulate products across different institution types. Other regulators should be included, too, to ensure a shared understanding of the impact of particular innovations on consumers, firms and the broader marketplace. If the CFPB likes what it sees, but the OCC or state regulators don't, then innovation will remain stymied.
Creating an innovation sandbox to tackle the most pressing consumer finance challenges is an incredibly tall order, but the CFPB may be up to the task. The CFPB is a start-up, as Cordray himself noted in remarks peppered with literary references, affording immense opportunities to build a different kind of regulatory agency.
Said Cordray: "Ernest Hemingway said that bullfighters are the only people who live their lives ‘all the way up.' It may sound odd to presume to say the same thing about government regulators, but we feel we are doing just that. And it is a marvelous feeling."
Jeanne Hogarth, Vice President, Policy, will be speaking at the American Conference Institute's (ACI) 7th Prepaid Card Compliance in Washington, DC on January 29-30, 2013. Click here for more information.
