Today i will be talking to professor lisa servon from university of pennsylvania and author of unblinking of america that was just released this month. Thanks for having me. Host why did you write the book was written for . Guest i rode it because i could not understand originally why alternative financialservices like payday lenders why so many people were using them in the course of my research i learned that banks were not serving the lowend and i also realize there were some good alternatives coming on board part of the first book i have written that is not academic eroded for the policymakers, those working for financialservices industry and you and me that may not be happy with the financialservices theyre currently using. Host what do mean by alternative Financial Service providers blacks what is that and why is it called alternative . Guest ic consumer financialservices industry into three components one is a mainstream component the second is alternative checked cashiers or payday lenders or pawnshops or read to own and they are growing as consumer Financial Services changes within normal Financial Services for their use by many americans. You talk about these alternative providers why a that is the impression . That is what led me to the question so many people are using these services there must be a reason because i know that families to have very little money they know where every penny goes the other had to be a better reason. Host your slightly critical of the mainstream banks essentially you talk about their more interested in learning revenue cough through fees rather than the Business Model. You tell a great story of the Community Bank spirit yes. Was interesting and was not thinking about that what started research but i worked as a check cashier that took me back agrobusiness small immigrant town Central New Jersey my grandparents came from poland and went to the bank with my dad saturday mornings we go to the butcher and the post office we would end that that the bank it was a Committee Space to bump into neighbors my dad knew the tellers and i would get a lollipop for borne of a seven i got my First Bank Account and for those who are my age or older above my birthday money there, a savings from my allowance and the tips that aaron is a waitress and it was like a right of passage that i was conditioned to be a particular type of consumer with the interaction with the bank but now obviously my relationship is different now they think of a machine on the side of the building i dont know any tellers and they dont know me but we have lost sight not only that type of the relationship peace but the way they make money has changed as well. Back in the era of the early 70s they would make their money from interest threeperson interest on the savings account you pay 6 percent for the loan bankers could go to the golf course but that doesnt happen anymore. So interestrate were less predictable way and regulators say we saw what happened with the savings and loan crisis so figure out another way. So now we pay between 27 and 35 for an overdraft they made 32 billion in Overdraft Fees alone so that Business Model has created a situation to have more money to keep into the account in not overdraft the account because we dont make those miscalculations ended has driven a lot of people away from the bank. So what does your Research Show one generation ago . And are they always outside of the system breaks. However we have an act called the Community Reinvestment act that was a response to the banks to draw a red line with the would refuse to lend. So theyre not serving everyone well people love lightcolored and american beauties who felt the banks were not serving them. It didnt really have raised in the teeth until 1992 when it was amended. While the banks were not using the fees as the income generator but there continues to be where we see africanamericans paying more for credit and employment being charged to percent more. We saw that clearly in the mortgage crisis people of color who would have qualified that did not get one and it was very difficult to modify those, it should does that change the Publics Trust and banking . Zero lot. Across the board. So the trust is at an alltime low mentioning africanamericans and latinos much more of the wealth came from a lowercase and that can be traced back to differential mortgages. So the trust is set the alltime low with the people who were least able to bounceback have been the most hurt and have the least amount of trust. In your book you talk about working in these alternative Financial Service providers you saw that link that you were not expecting. The reason i went to work as a teller is it seemed the only way i can do answer the question why so many people reusing we services so i spent four months working as the check cashed her then working as a lender and a payday lender. I notice many people talk about having Bank Accounts but then after both of those still inside keynote from behind the counter in the interview lot of the customers and i told them why and was working there. I was up front and was not complete the ethical just to pretend. Bill when i talked about why or i found 50 percent of Check Cashing customers had Bank Accounts or had them and close them but in terms of why they use Check Cashing would is less expensive the Check Cashing was more transparent they knew what they were paying with those surprises and they trusted it they felt like they had relationships with the people that worked there. And to do something with the czech cashiers. To be one of the most Financial Products it was very clearly marked. Speaking to the audiences and undecideds thespians uh teller windows what is for sale homage to pay for each so was 1. 9 5 of the face value and cost 0. 89 for a money order it is less than what the post office charges they would bring their bills that would cash the check then apportion up the money on top of the bills not to pay the full bill but to figure out how much do i have to pay to the phone company or to deal lecture company or pay the rent in full. Then but never they have left was what they had to live until their next paycheck but theyre happy with the knowledge they knew what they were getting and how much it cost in what bills would be paid immediately if they could deposit that and then go on line to pay their bills it was hard to be certain the bills would hit their account after the check cleared where the biggest complaints that put their check in the account they did not know when it would clear sometimes they needed to pay the bill right away or though late fee soleil was an expensive decision but also logical. In the book you talk about so have a surprising response of puerto rico woman in her 50s and to come to my window with the information, the computer screen to pay 20 every time she came in. And to explain what they needed to do. To create an arrangement which is interesting in and of itself that would have been charged the bad jackie to keep track of the customers bad behavior even if it is not your fault you made be kicked out of your bank account and then you cannot get another account for a couple years so they say i cannot pay that todays so what do we do . So we say sorry we need a 20 the teller said of course, not so that is the good example without being penalized so do uc to create opportunity spinet there has been such a change the guy who hired me said by way of illustration banks want one customer with a milliondollar is inject cash schurz want a million customers with 1 nobody can argue with that like every other profit seeking corporation the question is if they are ethical is a the process because they have a Critical Role should be held to a different sets of rules. A do think it is an opportunity for the alternative and other businesses to solve the problem in another way. And to some extent to fill the gap to cause people to choose what they cannot afford to. So we will get back in some may argue you have a portrayal of those providers but you also caution that they need to be regulated so hows you feel about that balance . It is particularly tough there are five federal agencies for and then all talk to reach other they dont necessarily coordinate and it is important to point out they are regulated that the state level not the federal level except what you mentioned is coming down with or regulations on payday and vendors which is probably a good example right now we have a situation where 13 states it is not legal to make the payday loans. But the states that do with different fees, Interest Rates and terms of is hard to make sense of that people crossing state lines are going online so this is the case where federal regulation is appropriate to have a uniform set of laws and some of the rules coming down make a lot of sense probably the most specifically is to pay regulation. What people have argued is that people who take out payday loans are not using them away that they were designed. Very small loans between 50 and 300 that have very quick due dates either two weeks or four weeks after they are issued and they are expensive because 15 for every 100 borrowed. But theyre not advertised because of they take that 100 loan bank cannot pay it back the situation caused the uptodate about in the first place has been rectified but they dont have a windfall to rectify that so they take it out again in two weeks. It is true it is problematics of how they pay 30. And the treadmill keeps going faster and faster so they will pay much more alternately. So what theyre prepared to do is say ascertain if the bar were is a borough to pay that back which is hard to do but that does make sense and the fact the lenders have to do some work before the bar were can get it brings other competitors into the market they want that loan immediately they do right now and intendants they have the dollars in their hand but if there is a short waiting period that will allow other lenders making loans much more cheaply it could be more expensive but lowers the cost for a lot of people from the payload that could be as high as 300 . So you are looking what you think the states are doing right . Use specifically mention colorado. Where do you see the states particularly smart on the issue . Period from the Research Perspective it is interesting with a different experiments going on. Colorado outlawed the lumpsum loan to pay old thing back immediately and turned them into installment loans you have the time period to pay a back over all that is probably good. Because it gives people more time and lessens the cost to roll with over. Think we need to do more research on before and after and in some instances when the state outlaws there is an increase of overdraft which is the essentially the shortterm loan if you could convert that interestrate so we have to be careful to make sure we dont think were doing Something Better but the outcome is better than we need to do more research to figure that out but the trend overall is starting to change anticipation of the rules coming down to the installment loans and that will help but there probably will be a stall with the regulation of all people are waiting for the rules to come down. So we see is the Financial Markets some investors are looking closer investing in subprimal creditcard lending. That has changed quite a bit since the card act, will that be a big threat to pay day lending greg. Has the potential. The build card was really created to be more transparent and an ethical alternative to target people who otherwise would have taken out payday loans with a 500 limit that limits someones opportunity to get a large loan but it does offer the opportunity to pay back in installments and have the of the way to know that they have the credit and they can manage it. So far it does look promising. And given the work that went on with the card act there is potential for the credit card marketed to the supply of population to be a real alternative. Some people argue a complete ban on that style of lending or the user recaps the military landing capsule loans for the Service Members but someone argue those types of interventions actually create an environment to offer better products such as fuel vehicle standards or better cars come onto the market corrects. If we have these ability to pay rules some will create a more competitive marketplace and those who are entering we see those actors. It is not that easy to figure how to do the underwriting to make a profit so we have seen that. It took about eight years before made a profit the was a lot of Venture Capital the some of the models could scale up and certainly if there are these regulations bello were the capital we may see innovation, up. But the central question is expensive credit better than no credit at all . Wanting it tried to do is not just how that argument to ban the payday lenders but the situation the find themselves in. With focusing on the of lenders and then we still have the demand so the supply issue in those that made payday lending small to those levels of interviews regularly. Or whether there simply there. Same with credit cards we see it increase in usage. We also see a shift in use over time. In terms of when people take on credit. Lets talk a little bit about the regulators by your comments it sounds that you really feel like the fdic has really put a moral preference on having a bank account or that they favored the idea that every citizen should have a bank account do you think every citizen should have a bank account . It works for me and it works for people like me in to have stable incomes and good jobs and can afford to save and had a relatively high balance but i think the Banking Industry needs to change. In order for that to be the suitable answer for every american and i think we have it a little bit backwards. Some of the programs that are being pushed are people opening Bank Accounts but without making sure that the products and services that are available to them actually work. Credit unions are often a viable alternative. It is also not that easy for people to figure out how and when to open a bank account. People say theyre not happy with their bank but they dont know what to do and they dont know what the alternatives are. We talked about the data about how more and more Financial Institutions are really dependent on Overdraft Fees and other charges like this and its not just big banks its true of Smaller Banks as well. I am concerned about the fact that they hold half of our deposits. At the same time i think a lot of Smaller Banks had had the same practices in order to compete and thats troubling and also makes it harder for people to say i will just go to the bank on my corner because that will be better. I do have a button on my website that is called how to leave your bank. How they can go about figuring out whether the Financial Services that theyre using now are the best for them and where they can find the credit union that they can join what else do you think they need to change about their mindset. They might be partial to banks over nonbank Financial Advisors but what else. I think there are things at the regulators could do to solve some of the problems. Its what my customers told me about. When i talked about was transparency. I kind of painted that picture of what it looks like most people that are watching probably know what it looks like. They may not had registered that you dont see anywhere what is for sale what are the products how much they cost. Are there different kinds of options for these. You have to opt in to overdraft protection. Lifting up the important decisions about what kind of account you can get whether it makes sense for you to have that protection or not those are really important and one of the things that i advocate for in my book is Something Like a financial fact box. The way we have nutrition facts on the side of breakfast cereal and you can stand sidebyside probably not in a bank because we do have a Financial Services marketplace. It would be nice. You could say a minute compare that. Another thing that i think that the regulators could help us to is to evaluate one provider. We live in a city where restaurants are regulated by the Health Department and every restaurant has a b or c in that window. Its hard to miss. I dont know about you but i do not order thai food from the bnc in my neighborhood i dont know whats going on in their kitchen. People could say this is kind of a housekeeping thing. One thing i a lot of ideas is that there are products and services that very innovative people are trying to create to help serve People Better in the consumer Financial Services industry that are having trouble getting through. The ability to have drug makers test drugs before they go on the market to see if they are safe. The uk has a regulatory sandbox. Its kind of test market something before it has to go through all of those regulatory hurdles. Those are three things that they could do to help speed up this problem. As you know they do have a project catalyst that is helping innovators bring new products to market. How do you think the regulators need to change in terms of interacting more competition to a market that often sorely lacks it. Being a little bit more open to it is the first thing into realize the conversation with these writers. And work with them more closely to make a determination about whether they are safe. Seen that they dont fit into the preexisting box. Out of the habit of viewing products that had preexisting institutions like banks. They are coming from all different sectors. They are creating products and systems. The have a potential to help people. Every time they try to work with entrepreneurs the banks are the ones that really get upset about it. Those are the technologies that really could disrupt their Business Models. Some of the people that i spoke with who are the innovators when i said why arent the banks doing this instead of you guys probably what they said was there almost like little laboratories that are funded with relatively small amounts of money. Sometimes the people that have them up had experience in the Banking Industry in the policymakers what they and what they say is the banks dont really theyre not as dynamic and nimble across the silos. The kind would rather had those things going on. If there is a future in them. That is a possibility also that they will innovate not by growing in these things organically but by purchasing other forms. Now tell me you spent some time in the books talking about millenials and the millennial experience with the banking ones that will not be going into a branch but they certainly had daytoday contacts with the payment payment apps or other Banking Services how do you see that changing the business of banking. First of all i think they get a bad rap. They actually are saving at higher rates than the previous generation. We think of them as being this irresponsible generation that simply relying on their parents to fund what they do. Theyre actually been pretty savvy. Theyve a lot of student debt so they have no choice but to really think about how they are going to deal with that. They are the largest generation even larger than baby boomers 25 percent of our population. No matter what we say about them they will change the face of consumer Financial Services. The four biggest banks all make the top ten list of least likes and most hated brands. Didnt grow up like i did. The experience banks like my kids do. And they are much more comfortable than people generation x or y that transmit information. People like my mom is 80 has an instinctive risk aversion when she think about putting any of her information into a phone or computer but this generation doesnt think that way. It allows them to pay each other back really easily. They are very willing to look at banks that dont have brickandmortar offices. All of the banking in a mobile way. And they tend to do the research to make their choices. And also listen to their peers. People my age tend to go online and look at things in compare and millenials will talk to each other and as how some of these apps and other things spread like wildfire. I do think theres a real opportunity for bankers and other Financial Service providers to figure out what makes that group tick into develop applications in products for them. They have shown that there really willing to experiment. Some of them came of age during a financial crash they saw their mother or father lose their job maybe they have seen other family go through foreclosure and we see in the data. The student debt has more than doubled. And more millenials are working sometimes through college. How do you think we change the view the public has a millenials who are just leeching off of their parents. Write about how they are doing things that are responsible in terms of their money. And i think the other think that we have to do with all of the stuff weve been talking about is to think about how the condition of the American Worker has changed. Millenials are really coming together in one of the things that really struck me was how they did not relate to the American Dream as it was kind of put in front of me and my parents had been able to get a good job came with a stable predictable income. Maybe even one job per household. By home save for retirement. Say for your kids college. Not very fancy jobs. I talked to a lot of people who had masters degrees and said if i take the job of my dreams i may not be able to head children or i deftly will be able to buy a house. We are still kind of projecting the American Dream as though its a reality but they are waking up as a graduate and sane and i think thats a reality. We have these huge problem i think of shame and embarrassment and sometimes they are resentful. My parents had this but i snack going to be for me. I dont know if it changes the largest public percentage. And we look at only the fact that they are moving back home theyre not gainfully employed and judge them for that without looking for the larger context. Its the same context in some senses living at home may be the more financially responsible thing to do. Im glad i did not want to go back home. That these young people are so happy to go back and move in with mom and dad. They cant grow up and go through these stages of adulthood. Do you think it will make them more skeptical of taking on debt especially after their student debt experience i deftly talk to some people for who their debt was already so big. What is a little bit more. I would say on a whole many of them are feeling like they are reticent to do the credit cards. Theyre not so sure that they can rely on the income one of the most disturbing aspects of my interviews was how my people talked about not being able to do things like go to friends wedding which seems like luxuries may be. But i thought about it in terms of their we dont always live close to where we grow up. And you depend on these kind of life events in order to maintain that rep web of support. They have to opt out of those things in order to be financially responsible. Then they felt like those ties were weakening. And from the perspective of Civil Society as a troubling thing. He have a student loan and he defaulted. His relatives did not really want him to become home for things giving. Because his grandmother was being financially harmed by it. Etiquette absolutely does. I also talked to many parents who do not expect to have to take in their Adult Children and were squeezed by those obligations in kind of felt like the parents were taking out loans that they should not have taken on because they wanted to help their children. They felt guilty as parents do even when things are not their fault. But the upside of more millenials in the Financial Services marketplace was there more opportunities for innovation in disruption. You spent a good amount of time talking about some of the companies youve already mentioned but what you see. Do you see these providers do you think any of them really have a chance to fundamentally transform the business of banking. I think they do. I would just amend your question. I will talk about also. One of them. It was located in san francisco. A startup. That is looking to create an internet value. It would enable them to move without cost and immediately the same what happened if i send you an email. So what that does is it catches on and it looks like its got a pretty good chance of doing it. Now i dont have to wait the three or four days for it to clear in my account or if i want to remit money or send this out. That eliminates a huge barrier of people they will get the money when they need it. It has to do almost with the plumbing of the Banking System. I looked at a firm called ltc that was recently bought by trans union. They are piloting a new credit scoring program. And how much money they are using as a credit they have available. The other new credit score model. Its the broader. Of time is liable to be much more fear. I looks at other aspects and liabilities that are on the personal talents sheet. Things that your typical credit score does not include. They have no credit score. If they try to get a loan they dont have the information if they apply this different credit score model they can all be scored. If you rescore everyone. So at the credit core credit score model you see this with excess of cheaper and better credit. Those two things in innovations are kind of like these systems that run underneath the whole system but would really open up the Financial Markets and existing Financial Services to a much wider group of people. But there certainly some losers from those innovations. There are industries that depend on lower deposits clearing in peoples Bank Accounts. They make quite a bit of money sending money overseas. Will they die where will they simply figure out a way to stop those innovations. I dont know the ins and outs of Western Union as i probably should. Its likely that they would want to take on innovation and compete. What happens now for example is that if i got a Western Union to send money to guatemala all i see is the money going across the counter. But the money will. Several times between here and my cousin in guatemala and every time it stops it takes a little time and it costs a little money and there is a potential for error. And for the folks that work in this industry call that friction. At least on the surface there be that be good for Western Union also. It will be able to compete with other providers there may be some in that industry. His creative destruction. Thats how industry always works. The benefits make it reasonable to follow this. Lets talk about some of the other solution that you think our important other than fostering innovation. To increase the Postal Services participation. I think to start off i would say that we had had a range of relationships when we think of the relationship between the Banking Sector and the public sector. If we go back to Supreme Court justice they all argued that the Banking System was kind of like the railroads. It was a different tend of structure. And banks get to pick particular kinds of benefits from the government. After the crash of 20 09 we instituted this they created a system that if you put your money in the bank you would not lose it. They should do something in return for the insurance and other kind of benefits to get favorable treatment on loans. The relationship has kind of moved from banks been responsible to a larger Public Interest to banks been more responsible to their own profitability and efficiency in the government enabling that. That is all context to say that i think we need to move that relationship back mark to decide where banks have to do more in the Public Interest and i think there are a few ways to do that. It has been proposed offandon by many people as one might to do that in which post office is would create Bank Accounts for people mostly for immigrants earlier in the century they got kinda phased out but the argument is that the Postal Service would not be in the business of making a huge profit. The last time that was raised as an idea was for five years ago and it was a white paper coming from the inspector generals office. And they argued it would be a benefit to consumers and also that the Postal Service could make a profit. Which i dont think is really feasible nor should be the desired goal. I think we should consider a public Banking System but that the reason to do it would simply be that is the right thing to do. It should be a right of every citizen to have a safe affordable safe Affordable Access to Financial Services. The other things i think we could do along those lines. Weve a the program right now call the lifeline program. They give all americans to telephone service. The argument and i believe it was created under reagan was that you need a phone line in order to call 4114911. It will subsidize the phone service providers. Given the amount of money thats been made its hard to argue that they should be subsidized to do this. It also doesnt fit their Business Model. They are not necessarily making a profit on these people. I definitely think we need to pursue more of these ideas. In the Current Administration i dont think that is a likely prospect. Was whats the likelihood of advancing what you call in the book financial justice what he think is the roadmap for that i think the first thing that we need to do is to really think about that what financial justice means are they all be treated the same way. In other ways that are outside of the actual Financial Services system but very much linked up with it. We saw africanamericans in poor neighborhoods being unfairly targeted for things like broken tail lights and minor infractions. That led them to basically fund the municipal system. The Debt Collection practices. I think the first step to kind of collect all of the information. As it sits right now there is a huge amount financial injustice. The next thing is to really kind of change the way that we are talking about this issue. We still use these categories of under banked which i think also had a deficiency built into them. You are uneducated or unhealthy. Theres something wrong with you. If we change the conversation to be one that focuses on Financial Health which is something the center for Financial Services has really pioneered we get to a different conversation. What do americans need in order to budget and plan. To save for retirement to deal with this. They are less and less able to deal with. They start to argue for policies. Defining the problem is one up on banking. I think given the way the banks are working with lower and moderate income people and this new middleclass we have to redefine the problem. I just want to thank you for being here today. The book again is the unthinking of america having new middleclass survives. It is available in bookstores and online. And we hope you all take a look at it. Thank you so much. History unfolds daily. It was created as a Public Service by americas Cable Television companies has brought to you by that cable or satellite provider. Heres a look at some of the most anticipated books being published in the springs. They show the journal entries from 1970 and her time reporting on the patty hearst trial in 1976 in south and west. They report on chinas global ambitions and everything under the heavens. They recall the work in liberia during the west africa ebola outbreak. The most anticipated books of that spring with the locking up our own. The role they had played in the rise. That book comes out in april. Also that month. The examine how a genetic illness affected a few in South Carolina in mercies and describes. Michael wallace provides a history of americas westwood expansion through the donner party. And its been published in may. They weigh in on the challenges inherent to a democracy in the long road to freedom. As a look at some of the books that Publishers Weekly as most anticipated been published in the spring. Look for these titles in bookstores and the coming spring. Good afternoon everyone. I would like to welcome you as well as the good friends from cspan to the mcgowan theater