How the new middle class survived. And lisa thank you for being here. Thank for having me. great to be here. Who did you write the book for . I wrote the book in a nutshell because i could not understand originally why if alternative Services Like check cashers and pay day lenders were so bad for people, why so many people were using them and in the course of my research, which took a few years, i learned that banks were not really serving the low the low and increasingly the middle class and i also realized that there were some good alternatives coming on board and i wanted to tell that story. The first book i wrote thats not an academic book, its for wider audiences. I wrote it for policy makers, for people who are working in the Financial Services industry and also for people like you and me, who may or may not be happy with the consumer Financial Services that theyre currently using. Great. Lets talk a little about what you mean by alternative Financial Services providers. So, lets level on whats that and why do you call it alternative . Yeah, thats a good question. So i see the consumer Financial Services industry as broken into three components. One id call a main street component. Banks and Credit Unions for the most part. The second is alternative, check cashers, pay day lenders, pawn shops, rent to own shops and a whole set of them and theyre growing as technology grows. The third is informal Financial Services which are not on the map of policy makers so much, but theyre used by many, many americans. Host and so, you talked a little about how people think some of these alternative providers are quote, unquote bad. Guest yes. Host and say more about why you think that thats the impression and it may be true, but put a finer point on that. Yeah, sure. So, you know, when i started doing this work, i was reading about consumer Financial Services and the way that many policy makers framed the issue. The fdic primarily, the federal deposit insurance corporation. Put out several years, the survey of banks and unbanked house olds and they were kind of looking they had kind of created in frame work of banks, unbanked and underbanked. Banks being households that use a bank account and do not use alternative Financial Services. Unbanks being those people who have no bank account at all and underbanked being people who have a bank account, but also rely on alternative Financial Services. And the message, the message of those boil reports really was that everyone should use a bank account. The latest Research Says that about 20 of americans are underbanked and another 8 are unbanked, have no bank account at all, and the implicit message was banks are definitely best for people and that those who traffic in un the alternative Financial Services are predatory, theyre sleazy, part of the poverty industry, just out to take advantage of people. And, you know, thats when i got back to the original question or led me to the question that made me say, you know what . If so many people are using the services, it must be something besides the fact that theyre ignorant or dont know better. Ive done this on services. And people who dont have a lot of money know where every penny goes. And there has to be a reason they go for the services. In your book, youre slightly critical of mainstream banks. You talk about how theyre more interested in earning revenues for fees than interest and their Business Model has changed. In fact, you tell a story about the Community Bank that you first banked at. Right, yeah, and its interesting because i wasnt really thinking about that when i started this research, but ultimately, i ended up working as a teller and a check casher at a pay day lender and took me back to my childhood. I grew up in a small immigrant town in central new jersey. My grandparents came there from poland. Wed go to the butcher, of the post office, my dad would get his hair cut and wed go to the bank. Like the other space, it was sort of a community space. You had pea bump into neighbors and my dad knew the tellers and the tellers knew him and id get a lollipop. When i was seven i got my First Bank Account and for viewers who are my age or a little bit older, it was a green passbook with gold letters and i put my birthday money there, i put savings from my allowance, if i didnt spend it. I put the tips i earned as a waitress later on and it felt like a rite of passage and only realized later i had been conditioned to be a particular financial consumer as a result of the early interaction with the bank. Now, obviously, my relationship with the bank like most people is different. When my kids think of going to the bank, they think of a machine on the side of the building that spits out dollar bills and i dont know any tellers at my bank and they dont know me. I think what weve lost sight of is the fact that its not only that kind of relationship piece of the equation thats changed, as you mentioned, the way the banks make money has changed as well. So, back in that era, the late 60s, early 70ses when i was going with my dad, banks made money from interest. Youd earn 3 . Youd pay 6 for the loan it was called the 363. Bankers would be able to go to the golf course by 3 00 and finish up their day. And that didnt happen, Interest Rates became a less predictable way for them to make money and theyd say, Interest Rates are volatile, we saw what happened with the savings and loan crisis. You need another way to make money. Banks discovered fees. The same fees that angered most the people that i talked to, we now pay between 27 and 35 if you overdraft on your account, banks made more than 32 billion dollars last year in Overdraft Fees alone and so, that Business Model, and lots of other fees that i could talk about, has created a situation where those of us who have more money to keep in an account, can afford the monthly fees or not pay them because we can afford them the minimum balance. We cannot overdraft our accounts very often because we have enough of a buffer and we dont make those kinds of miscalculations that people who live closer to the edge do and its driven a lot of people away from banks. So, what does your research show, how did lower income people bank a generation ago. Were they being served by these Community Banks or always outside of the system . Thats interesting, technically, many of them were being served. However, we have an act called the Community Reinvestment act passed in 1977. And that act was really a response to banks red lining. In other words, drawing red lines around particular neighborhoods where they refused to lend. So, in that sense, banks were not serving everyone well and it was largely low income people, people of color, immigrants, in communities, who felt like the banks werent serving them. The act was a response to that. It didnt really have any teeth until 1992 when the president amended it. Banks were not using that as a fee generator, but in the marks, there continues to be, even though there are laws in place, africanamericans are paying more for credit, being denied prime mortgages or subprim mortgages more often. Women charged 2 more on credit cards, yeah. Host and we saw that so clearly in the mortgage crisis. Guest yes. Host where so many people are color who would have qualified for a prime mortgage actually didnt get one. And some of the results of that was very difficult to modify those mortgages. So, how much do you think those troubles changed the Publics Trust in banking . I think it changed the trust in banking a lot across the board. So, banks people sort of trust in banking overall was at an alltime low. As you mentioned, trick or treat and latinos lost much more of their wealth, the wealth that they had before the crisis, and they were starting from a lower base. So, that, the crisis was devastating and it often can be traced back to differential mortgages being offered, right . So, trust is at an alltime low. I think the people who are least able to bounce back from that have been the most hurt and have the least amount of trust. And so, in your book, you talk about how, when you worked in some of these alternative Financial Services providers, that you actually saw that trust link, which you were not expecting, i think. Guest yeah, so, you know, the reason i went to work as a teller in both of these places was that it seemed like the only way i could answer this question of why so many people were using these services, and so, i spent four months in the south bronx working at a check casher, as a teller, and then three weeks fulltime working as a lender, and as a loan collector at a pay day lender in oakland, california and what i saw was, well, i noticed that many a people talked about having Bank Accounts as well, but doing certain things at one place or another. And then after both of those stints as tellers, i came out from behind the counter and interviewed customers and told them why i had been doing the work there and wanted to talk to them you were upfront with everybody . I was upfront. It wouldnt be completely ethical to pretend like i was just working as a teller and i stuck out like a sore thumb, also. When i talked to people why they werent working as banks or closed their Bank Accounts. 50 of the check casher people, check casher customers i interviewed either had Bank Accounts or had them in the past and closed them and the three things they talked about in terms of why they chose to use the check casher were that it was less expensive, which was completely counter intuitive to everything i read. That the check casher was more transparent, they knew what they would be paying and when they would be paying it and snow surprises. They trusted it more and felt like they had relationships with the people who worked there and they didnt get good service at the banks. Its interesting because so many people look at Check Cashing almost with some moral condemnation. Guest yeah. Host when i was a regulator at Consumer Financial protection bureau, we would hear, you know, you have to do something about check cashers. When i would play devils advocate, i would say that Check Cashing is perhaps one. Most transparent Financial Products there is out there and you talk about how at the store you were at, it was very clearly market, what the prices were for specific services. Guest yeah, when i talked to people, i asked whether they had been to a check casher or a pay day lender. If you havent id recommend you walk in one. If you walk in the signage that spans the tellers windows looks like an mcdonalds to me. Its got the products listed, whats for sale, how much you pay for each, so, for example, when i worked as a check wa casher, 1. 9 for the check to cash it. And paid bills there, cost 89 cents for a money order up to 500 which is less than the post office charges so people would often do their banking there and come, say, on a friday when they got their check and bring their bills and you know, cash the check, i would give them cash and theyd portion out the money on top of the bill often times not paying the full bill, they couldnt afford it, how much do i have to pay to the phone company or to the Electric Company to keep from getting my lights turned off, and maybe paying their rent in full because they knew they had to do that and whatever they had left was the money they had to live on until their next paycheck. But, i think they also, they were happy in the knowledge that they knew what they were getting, how much it cost and they knew those bills would be paid immediately, right if they had deposited that same check into the bank account and then written checks or gotten online to pay the bills it would have been hard for them to be certain that those bills would be would hit their account after the check cleared. One of the biggest complaints from people was that they put their check in their account and they didnt know exactly when it would clear and sometimes they needed to pay the bills right away or face a late fee and they needed to buy food for their families over the weekend, he so it was an expensive decision, but it was also a logical one. Host so, in the book you talk about a situation where a customer is unable to make the 20 payment. Guest right. Host and how you saw a surprising response from the establishment. Guest right, right, yeah, thats the story i told a woman named marta, a puerto rican woman in her 50s, and she came in regularly to cash a government check she got, i dont remember whether it was once a month or once every two weeks about you she came to my window and i scanned her check, put her customer i. D. Number and saw her information come up on my computer screen and what i saw was a message that said she had to pay us 20 every time she came in which id never seen before so i asked one of the other tellers to explain to me what i need today do and she said, oh, yeah, marta cashed a bad check last month or her check didnt clear for some reason so we created an arrangement with her shell pay it back, 20 every time she comes in. Which was interesting in and of itself. Right . Because if youd gone to a bank probably that you would have been you would have been charged a bad check fee and that transaction would have been logged in check systems, which is the system that all banks use, to keep track of their customers, kind of bad behavior. And if you have too much of that bad behavior, even if its not your fault, you may be you may be kicked out of your bank account and because the banks share it, you wont be an i believe to get another account for several years. I heard a story about this over the weekend. Anyway, so marta says i cant pay the 20 today because ive had an emergency medical expense. So, again, what do we do . Do we say, sorry, we need the 20. Do we cash her check . The teller working with me says, of course were going to cash her check, shes a good customer and shell pay us next week. Thats a good example, the reason i told the story in the book, its evidence how the relationship Still Matters at many of these businesses. Whereas its very hard at a bank to get that service and have them help resolve your problems without having you being penalized in the process. Host so do you see this as banks essentially not serving this population well and creating opportunity for alternative providers . Or do you see it as alternative providers are outfoxing the banks . I think theres such a change and banks, frankly, they make money off of those of us who have more money. The guy who hired me in the south bronx, joe coleman, he said by way of illustration, he said banks want one customer with a Million Dollars and check cashers want a million customers with 1. And banks like every other profitseeking Corporation Want to maximize their profit. The question is whether theyre being ethical in the process or not and whether banks, because they have a Critical Role in the economy thats a little different from other Service Providers or, say, manufacturers, should be held to a different set of rules. I do think that it is creating an opportunity for the alternatives and also, for other businesses that are springing up now that are looking to kind of solve the problem in another way. So, you see people in this industry called fin tech, financial technology, who are creating different products and services that are to some extent designed to fill this gap in the market thats been left thats caused people to choose neither banks that they cant afford or somewhat expensive alternative Financial Services provider. So well get back to fin tech. I want to ask you about, and some might argue that you offer a little bit of a sympathetic betrayal of some in alternative Services Providers space, but you also caution that they also need to be regulated and to curb some of the abuse. So, how do you feel about that balance . Its a very tough balance and its particularly tough because there are now five federal agencies that regulate nl if Services Providers and not all of those, you know better than i do, talk to each other, get along with each other. Theyre not all necessarily coordinated. Host and thats not even counting the states. Guest and its important to point out that the check cashers and are not cfpd coming down with regulations on pay day lenders, which is probably a good place to a good example how to talk about regulation. So, right now we have a situation where 12 or 13 states are not its not legal to make pay day loans so the states have come down about that. The other states that provide them have different fees, different Interest Rates, different terms, its hard to make sense of it from a consumer perspective and you have people crossing state lines or getting loans from online lenders in order to get the loans. And this is a case where i think the federal regulation is really appropriate, where it makes sense to have a uniform set of laws and where i think some of those, some of the rules coming down from the cfpd make a lot of sense. Probably the most specific one is the ability to make pay day regulation. What some argue, people who take out pay day loans are not using them as designed. Maybe for people who live in a state where these thinlt r things arent legal ininstructive to say what they are. Pay day loans are very small loans usually between 50 and a few hundred dollars. Theyre due on the next paycheck of the borrower. Theyre 15 for 100 borrowed. The reason theyre not used as advertised. Many people taye if they take the 100 loan in two weeks, they cant pay it back in two weeks. The situation that caused them to take it out in the first place has been rectified, maybe not, but havent gotten a windfall to compensate for them. And they take it out for another two weeks and pay another 15. So its true that thats problematic. You get somebody then paying 30 for essentially the same 100 loan. Host and the treadmill keeps getting faster and faster and faster. So they can be paying much more than they borrowed ultimately. So what the cfpd is prepared to do, is to say you need to, lender, ascertain whether the borrower is going to be able to pay that back. Thats hard to do, but i want to kind of set that aside for the moment and says that makes some sense. And the fact that the lenders will have to do some work, to underwrite that loan before the customer can get it, the borrowing can get it, creates space for other competitors into the market. What borrowers want most is to get that loan immediately. And they do. Within ten minutes they get the dollars in their hand and usually need it for an emergency. If theres a short waiting period that will allow other lenders making loans much more cheaply, one i like in california makes loans at about 36 . Some people think thats too expensive, but it definitely lowers the cost for a lot of people from a pay day lone which is 300 to 600 apr. Host how do you see this space needing to be regulated . So you are looking at the cfpd regulating. What do you think that states are doing right and not right . You mention some outright ban them and specifically mention the experience of colorado. Guest yes. Host where do you see the states being particularly smart or not smart on this issue . From an academic perspective or research perspective, its interesting. You have the different experiments going on all over the place. What colorado did was outlaw lump sum loans, where you have to pay the whole thing back immediately, and they made them turn into installment loans, meaning you take out that 100 and you have a longer time period to pay it back. I think overall, thats probably a good thing because it gives people more time. It probably lessens the cost and likelihood theyll have to roll it over. So, thats one interesting thing. I think we need to do more research on the before and after kind of things. In come instances it appears when the state has outlawed pay day loans outright theres increased use of overdraft. And an overdraft, which is essentially a shortterm loan has Something Like a 5,000 apr. If you converted the Interest Rate and made it apples to apples with a pay day loan. We have to be careful we dont think were just doing Something Better and make sure that the outcomes are actually better and i think we need to do more research to figure that out. But i think the trends overall and many of the lenders are starting to change in anticipation of the pay day loans, to installment loans and i think thats going to help. But theres probably going to be, frankly, a stall in terms of the regulation while people are waiting for those rules to come down. Now, were seeing in the Financial Markets that some Financial Institutions and investors are looking closer and increasing their investment in subprime credit card lending. So how do you think that the subprime credit card lending which changed quite a bit since the card act. Will that be a big threat to pay day lending . I think it has the potential to be. I write about one of the cards in my book, the build card that was created and the bill card was created as to be more transparent, more ethical alternative to pay day loans. It was to target people who otherwise would have taken a pay day loan. I think it has a 500 limit so that limits someones opportunity to get a large lo loan, but it does offer the ability to pay it back in installments and for people to have a little bit of leeway to know that they have that credit instead of having to go out and apply for it when the emergency hits and to manage it. So, the studies of bills so far, it hasnt been out for very long, it looks pretty promising and i think given the kind of work that went on with the card act to curtail bad practices, i think theres potential for marketed to the subprime population to make a difference and to this group. Host some people would argue that a complete ban on pay day style lending or a usury tax, you mentioned the cap of apr for loans to service members. Some would argue that those type of interventions actually create the environment for new competitors to come in to offer better products. Such as when fuel vehicle standards are out there that the cars come onto the market. How do you react to that type of argument . I think as i mentioned before, i think if we have the ability to payrolls, for example, some of the regulations will create a more competitive marketplace. And i do think that we see some actors entering in. Its not its not that easy to figure out how to do the underwriting in order to make a profit and serve this market, right . So weve seen that. In fact, opportune, which i mentioned before take years before they made a profit and they needed venture capital. But some of the markets could scale up and if there are regulations that lower the cap, lower the usury cap or outright ban them, that they may see innovation come up from the bottom. I think one of the central questions here, is expensive credit better than no credit at all . And the thing that i worry about and one of the things i try to do in the book is to not just have that argument whether we should ban pay day lenders or not, but to look at the situations that people find themselves in. And to understand it from their perspective because i think, you know, with the focus thats being solely on lenders, we run the risk of saying, like, well, lets just ban them all outright and then we still have the demand, right . So to separate kind of the supply issue from the demand issue, look at them both, but also focus on the conditions that have made pay day lending swell to such levels and frankly, to start to become used regularly by people who look like they should be in the middle class and not have to have the solutions. So, i think, you know, we need to have those questions of what to do about it, but we also need to be looking at what happens to people who are in these situations where theyre making choices that i cant imagine making, you know, whether i should take out this loan or have my kids go hungry for the weekend. Whether i should fix my car, taking out an expense stiff loan or lose my job because i cant get to work. And you know, we hear those stories, but im not sure if people really think about what it would be like to walk in the shoes of people who are making the choices. Yeah, i agree and the evidence is a little bit mixed as the extent to which people are using it for emergencies or whether theyre simply on the treadmillmen treadmill. The same with credit cards for basic expenses for food for utilities, et cetera, et cetera. That may be because of incentives that Credit Card Companies give us, but we see a shift in time when people think its appropriate to take on credit. So lets talk a little about the regulators. Yeah. So, by your comment, it sounds like you feel that the fdic has really put a moral preference on having a bank account or that they are favored, essentially, the idea that every citizen should have a bank account. Do you think every citizen should have a bank account . I dont think it makes sense for every citizen right now. I think, you know, it works for me, it works for people like me who have stable incomes and good jobs and can afford to save and can afford to have a high regular relatively high balance, but i think the Banking Industry needs to change in order for them to be the suitable answer for every american and i think we have it backwards. Some of the programs that are being pushed are for people to open Bank Accounts, but without making sure that the products and services that are available for that actually work for them. Credit unions are often a viable alternative. Sometimes Community Banks, but not always and its also not that easy for people to figure out how and when to it does make sense to open a bank account and where to do that. So lots of people i talk to say theyre not happy with their banks and they dont know what to do and what the alternatives are. Host we talked about the data how more and more Financial Institutions are really dependent on Overdraft Fees. Guest yes. Host and other charges like this and its not just true of big banks, its true of Smaller Banks as well, isnt it . Thats right. I am concerned about the fact that the four largest banks hold half of our deposits and that the number of Smaller Banks has diminished radically the last two decades. At the same time, i think a lot of Smaller Banks think they need to adopt some of the same practices to compete and people say ill go to the bank on the corner because its better. Its not formulaic. And how to leave your bank, and figure out how the Financial Services are best for them and where they can find a credit union they can join. Host what else do you think that the regulators need to change about their mindset. You mentioned a little that they may be partial to bank over nonbank financial providers, but what else . I think there are things that regulators could do to solve some of the problems that my customers told me about when i worked as a check casher and pay day lender. One i talked about was transparency, right . So i kind of painted that picture as to what it looks like when you walk into a check casher. Most people know what it looks like, but may not have registered you dont see anywhere whats for sale, how many are the products, how much do they cost, are there different kind of options visa these are the Overdraft Fees and actually the law now says you have to opt in to overdraft protection, but most people ive surveyed dont know whether they opted in or out and lifting up the decisions what kind of account youre going to get, whether it makes sense for you to have overdraft protection or not. Those are really important. One of the i think so this that i advocate for my book is Something Like a financial fact box that would accompany every service the way that we have nutrition fact boxes on the side of breakfast cereal and bread and pasta sauce to show exactly what is in that so you could actually stand side by side, not in a bank because we dont have a Financial Services marketplace, it would be nice, but at least you could say im going to compare this Checking Account to that one. Nerd wallet is a site that i like that helps people do that. Thats one thing. Another thing i think the regulators could help us do is one provider over another, you and i both live this new york city, live in a city where restaurants are regulated by the Health Department and every restaurant has an a, b or c in its window, a big blue letter, hard to miss and i dont know about you, but i do not order thai food from the bs and cs in my neighborhood and i dont know what is going on in their kitchen. And jurisdiction over pay day lenders, check cashers and banks. And people could say this is like a Good Housekeeping seal of approval. Finally, one third thing, i have lots of ideas, but ill talk about one here, 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 regulation that you need to get through to get that product to market. So the fda has the ability to have drug makers test drugs before they go on the market to see if theyre safe. The u. K. Has a Financial Services regulatory sand box that would allow Financial Services creators to do the same thing, to kind of test market something before it has to go through the regulatory hurdles. Those are three things that i think that regulators could do to help speed up solving this problem. Host so the cfpb as you know, had as a catalyst to help them bring new products to market. How do you think that the regulators need to change in terms of interacting with new providers that may be offering more competition to a market that often sorely lacks it . Well, i think that kind of opening up the regulations and being a little bit more open to it is the first thing, and to realize, to have conversations with these providers and work with them more closely to make a determination about whether those products are safe versus harmful. Before just kind of seeing that they dont fit into the preexisting box. I think that regulators are often out of habit of the mindset of kind of viewing products that are coming through preexisting institutions like banks. And now we have entrepreneurs that are coming from different sectors creating products and systems, not always products, that have the potential to help people, but because they dont fit into one of those preexisting boxes they kind of dont make it through the screen. Host its interesting, my experience as a regulator. Every time regulators try to work with entrepreneurs and innovators, the banks are the ones who really get upset about it because those are the technologies that could disrupt their Business Models. Thats right, thats interesting you hear them say that. The innovators, why arent they doing that instead of you guys. Partly because these are almost like little laboratories funded with relatively small amounts of money. Theyre very nimble and sometimes people who had them up had experience in the Banking Industry and the policy makers and you know, what they say is the banks dont really, theyre not as dynamic and nimble and able to talk across silos as the newer fin tech organizations are and theyd rather have the experiences going on at the microlevel and the banks would buy them if theres a future in them. And thats a possibility that banks will innovate not by growing these things organically, but by purchasing from other firms. Now, tell me, you spent some time in the book talking about millennials. Yeah. And the millennial experience with banking, ones that will not be going into a branch, but they certainly have maybe daytoday contact with payment apps or other banking services, and how do you see that changing the business of banking . Why, good question, i mean, first of all, millennials, i think, get a bad rap when it comes to money. And they actually are saving at higher rates than the previous generation did, and theyre pretty on top of it. Significantly higher rates. Guest significantly higher rates, yes, so we think of them as being this kind of irresponsible generation who rely on their parents. Theyre actually savvy. They have a lot of student debt, for example, they have no choice, but to think how they are he a going to deal with that. They are the largest generation, even larger than baby boomers, 25 of our population. So, no matter what we say about them, they will change the face of consumer Financial Services, and the four biggest banks all make their top ten list of least liked. Kind of most hated brand. The old brick and mortar, they didnt grow up like i did, going to the bank with my dad. Theres no loyalty or patterning that happened with them. If anything, they experienced banks like me kids do as being atms and saw their parents doing things online and much more comfortable with people, generation x or yers using phones to transmit information. People like my mom, who is 80, has a risk aversion when she thinks of putting any of her information into a phone or computer. This generation doesnt think that way and theyre very willing to use apps like venmo and pay each other back easily if theyve shared a cab ride or a meal and willing to look at banks that dont have bricks and mortar offices. So, doing all of therapy banki banking their banking in a mobile way and tend to do the research to make choices and listen to their peers. People my age tend to go online and look and compare and millennials will talk to each other and thats how some of the apps and other things spread like wildfire. So theres a real opportunity for bankers and for other Financial Services providers to figure out how what makes that group tick and to develop applications and products for them. And theyve shown that theyre willing to experiment. And one of the things that people forget is that so many people who are millennials came of age during the financial crash. Right. They saw their mother or father lose their job, they may have seen other family go through foreclosure and weve seen it in the data since the collapse of lehman brothers, student debt more than doubled and more millennials are working. Sometimes through college, so, how do you think we change the view that the public has of millennials who are just leeching off their parents in the basement . Yeah, i dont know. I mean, write about it, i think. Write about how they are doing things that are responsible in terms of their money, and i think the other thing that we have to do is with all of the stuff that we have been talking about over the last, however many minutes, is to think about how the condition of the American Worker has really changed, and millennials are could manying of age. Maybe the first generation, to really face a very different reality, and one of the things that really struck me, when i did focus groups and interviews with people that age was how they did not relate to the American Dream as it was kind of put in front of me and my parents of, you know, being able to get a good job, that came with the stable, predictable income. One job. One job per person and maybe one job per household although that wasnt the way it was in my house. Buy a home, save for retireme retirement. Save your kids college. My parents were teachers, not fancy jobs, but they were stable and were allowed to do those things. Ive talked to a lot of people who have masters degrees, if i take the job of my dreams i may not be able to have children or i definitely wont be able to buy a house so were still kind of projecting that American Dream as though its a reality. But theyre kind of waking up as they graduate from college or graduate school and saying, i dont think i can i dont think thats a reality and that sometimes they feel like theyve fallen short. We have this huge problem, i think, of shame and embarrassment and personal failing around money. And sometimes theyre resentful or just resigned by saying, my parents had this, but its not going to be for me. So, i dont know if that really changes the larger publics perception, but i think theyve gotten kind of a raw deal. And we look at only maybe the fact that theyre moving back home or not gainfully employed and judge them for that without looking at this larger context, which, frankly, is the same context that has created an upsurge in uses of pay day loans and check cashers. And in some sense of it living at home may be the more financially responsible thing to do for many of them. Thats right, im glad i did not have to go back home so i dont think that we should just assume that these young people are so happy to go back and move in with mom and dad and have their laundry gone and meals cooked for them. Theyre also feeling they cant grow up and go through the stages of adulthood and its because of the financial context. Host and do you think it will make millennials more skeptical of taking on debt, especially after their student debt experience . I think it will. I mean, you know, i definitely talked to some people for whom their debt was already so big that they felt like, you know, whats a little bit more. But i would say on the whole, many of them are feeling like, yeah, they theyre very reticent to run up their credit cards or to take on debt to buy a house or something because theyre not so sure they can rely on that inco income. One of the most disturbing aspects of my interviews with millennials is how many people talked about not being able to do things like going to their friends weddings or go home for holidays which seem like luxury, maybe. I thought about it in terms of their social networks, that these we as americans dont always live close to where we grow up and depend on these kind of life events in order to maintain that web of support and they often had to opt out of those things because they just, in order to be financially responsible, they couldnt participate, but then they felt those ties were weakening and i think from the perspective of civil society, thats a troubling thing. Host yeah, i heard from one gentleman who had a student loan and he defaultled and his grandmother was a cosigner, and his relatives did not really want him to come home for thanksgiving because his grandmother was being financially harmed by it. So, i think it does impact peoples psyche as well when they default. Guest yeah, i absolutely think it does and i also talked to many parents who didnt expect to have to take in their Adult Children and were squeezed by those obligations and kind of felt like the parents were taking out loans they shouldnt have taken on because they wanted to help their children and felt guilty as parents do, even when things arent their fault. There are strong intergenerational die nam mex happening here. Host but the upside of more millennials in Financial Services marketplace is that there may be more opportunities for innovation and disruption. Guest absolutely. Host so you spend a good amount of time talking about some of the companies youve already mentioned, but what do you do you see these fin tech providers or innovators, do you think that any of them really has a chance to fundamentally transform the business of banking in the open marketplace . I think they do. And i would say i would amend your question a little bit to say Financial Services, not just banking. Host yes, yes. Guest ill talk about two that are not about product and services, but change kind of the infrastructure of banking and credit. One of them, im one of them i write about in the book is ripple located in San Francisco where a lot of of fin tech hams. Ripple is a company, a startup that is looking to create what they call an internet of value, kind of like the internet of information that we all use to send text around all the time. It would create a system that would enable money to move from one place to another without cost and immediately, the same way it happens if i send you an email, right . So, what that does if that catches on, and it looks like it has a pretty good chance of doing it. It makes it possible for me to deposit that check in my account and have it available to me immediately. 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 to my relatives in guatemala or send money across the country, those things are rather expensive if you go to Western Union or a check casher. That right there eliminates a huge barrier to people getting Bank Accounts, right . Because they can get their money when they need it. So thats one innovation, it has to do almost with the plumbing of the Banking System, but not the products and services itself. Another one is around credit scoring. I looked at a firm called ltc recently bought by trans union. One. Three big Credit Bureaus and what theyve done is pilot a new credit scoring formula. If i were to get my credit score done receipt now, it wou would right now, a snapshot of me, how much im using of the credit available and whether or not im using things or overdrated or not. This other new credit model looks at a 30day period. So its a broader period of time, not just a snapshot. Its liable to be more fair and it looks at all kinds of other assets and liabilities that are kind of on my personal balance sheet. Including did i pay my rent and my utilities, things that your typical credit score doesnt include. Does not include, exactly. What mike, the founder of ltc found. First off, there are millions of people in the United States who have no credit score, which means if they try to get a loan, theyre going to pay a lot of money for it. That because they dont have the information that traditional Credit Bureaus use. Well, if you apply the different credit score model, they can all be scored and many of them get prime scores. If you rescore everyone, the millions of people considered subprime, many of them move to prime and super prime. So if that credit score model was instituted on a much larger scale, wed see millions and millions of people who would have access to cheaper, better credit, right . So these two things, those innovations are kind of like these systems that run underneath the whole system, but that would really open up the Financial Markets and existing Financial Services to a much wider group of people. Host but there are certainly some losers from those innovations and there are certainly some industries that depend on lower deposits clearing in peoples Bank Accounts and certainly, as you mentioned, companies that make quite a bit of money sending money overseas. Will those companies die or simply figure out a way to stop those innovations from moving forward . Guest its hard to say, i dont know the ins and outs of Western Union as well as i should. And its likely that the companies would want to take on the innovation and compete. What happens now, for example, if i go to Western Union or a check casher to send money to guatemala. I see my money going across the counter and a hefty fee, but the money will stop several times between here and my cousin in guatemala, lets just say, every time it stops it takes a little time and costs money and theres potential for error and that, the folks that work in this industry call that friction. So what the ripple folks are trying to do is take that out of the system. We found a service good for Western Union, too, because it will be able to compete with other providers. Host savings. Guest yeah, there may be some winnowing in the industry, but thats creative destruction. Thats how industry always works and i think in in case, the benefits to the consumer make it reasonable to follow the innovations. Host lets talk about some of the other solutions that you think are important, other than fostering innovation. You actually embrace some of the pushes to increase the Postal Services participation in the Financial Services marketplace. Tell us more about that. Sure, well, i think to start off i would say that weve had weve had a range of relationships when we think of the relationship between the Banking Sector and the public sec sore, if we go back to the Supreme Court justice, and Thomas Jefferson and Woodrow Wilson. They argued that the Banking System was kind of like the railroad. It was kind of a public utility. It was a different structure. It was part of the infrastructure that makes the economy run. And so that and banks yet particular kinds of advantages from government. Fdic insurance after the crash of 29 we instituted this insurance that created a system so if you put your money in the bank, you wouldnt lose it, if it went bust. The argument is that banks should do something in return for that insurance and other kinds of benefits. They get favorable treatment on loans from the government, et cetera. Whats happened really since the 80 when we entered a big long period of deregulation is that that relationship has kind of moved from banks being responsible to a larger Public Interest, to banks being more responsible to their own profitability and efficiency and government enabling that. So, thats all context to say that i think that we need to move that relationship back more to the side where banks have to do more in the Public Interest and i think there are few ways to do that. The postal Banking System that proposed off and on by many people is one way to do that in which post offices, the Postal Service would create Bank Accounts for people and provide Financial Services and that was done for a period, mostly for immigrants earlier in the century, and got kind of phased out, but the argument is that the Postal Service would not be in the business of making a huge profit from it, but rather providing the services as part of what it does. Now, the last time that was raised as an idea was four or five years ago, and it was a white paper coming from the Inspector Generals Office from the Postal Service. And that argued it would be a benefit from the consumer and also that Postal Service could make a profit and i dont think it feasible, nor should be the desired goal. I think that we should consider a public Banking System through the Postal Service or not, but the reason would be its the right thing to do. It should be a right of every citizen to have safe Affordable Access to Financial Services. Other things that i think we could do along those lines, one is that we have a program right now called the Lifeline Program that gives all americans access to telephone service. The argument, and i believe it was created under reagan, was that you know, you need a phone line in order to call 411 or 9 the 911. You need a phone to be in the job market. If ycant afford a phone, given the money they make, its hard to argue it should be subsidized. Theyre not necessarily making a profit on the people and thats something i think could be considered as well. So i definitely think we need to pursue more of these ideas that get government more involved in Financial Services, although, in the current administration, i dont think thats a likely prospect. Host so whats the likelihood, do you think of advancing what you call in the book, financial justice . And what do you think is the road map for that in these verien certain times . Yeah, well, i think the first thing that we need to do is to really think about what financial justice means, are all americans being treated the same way by Financial Institutions and in other ways that are a little bit maybe outside of the actual Financial Services system, but very much linked up with it. And those kinds of things, i would liken to what happened in ferguson where we saw ferguson, missouri where we saw africanamericans in poor neighborhoods being unfairly targeted for things like broken taillights and minor infractions. That led them to basically fund the municipal system. Debt collection practices that targets certain groups over others. So, i think the first step and this is something im starting to work on myself, is to kind of collect all of that information and lift it up to show that as we sit right now, that there is a huge amount of financial injustice in terms of certain groups and individuals being targeted in different ways and paying more. And then, i think, the next thing is to really kind of change the way that were talking about this issue. Right now, as i mentioned before, we still use these categories of unbanked and underbanked which i think has a deficiency built into them. It sounds like youre unhealthy or youre uneducated or theres something wrong with you, exactly. If we change the conversation to be one that focuses on financial health, which is something the center for Financial Services innovation has really pioneered, then we get to a different conversation. We start asking what do what do americans need in order to be able to budget and plan to save for retirement, to keel with the shock to their income . These things that have become increasingly common, but americans are less and less able to deal with. And i think thats the beginning of the road map to start to argue for policies that enable financial health. Defining the problem is one of unbanking, obviously leads to barricking as a solution, but i think given the way that banks are working with lower and moderate income people and this new middle class, it doesnt make sense as a solution, so we have to redefine the problem. Host well, professor servon, i want to thank you for being here today. The book again is the the unbanking of america how the new middle class survives available in book stores and online, and we hope you all take a look at it. Thanks so much. Guest thank you, its been a pleasure. Cspan, where history unfolds daily, in 1979 cspan was created as a Public Service by americas Cable Television companies. Its brought to you today by your cable or satellite provider. Here is a look at some authors recently featured on book tvs after words, our weekly Author Interview program. Lisa servon reported on Americas Bank and Credit System and how it affects the general public. Silvia terra how our bodies react to fat and counsel on Foreign Relations richard haass, the challenges facing u. S. Policy. On the coming weeks in after words, former chief of the Police Departments internal affairs will talk about. Bill gertz will provide thoughts how the United States can outpace global competitors during the information age. New york times correspondent helene cooper. Leader of the librarian Womens Movement and the first democratic female president. And Sheldon Whitehouse how legislative decisions are influenced by groups. Some of the corporate influences have been around for quite a while. The extent to which corporate lobbying dominates in congress, i think its about 301 over everybody else. By recent studies. Thats probably been so since the 1970s. And the problem of regulatory capture in administrative agencies in the regulatory agencies, where the regulated industry basically moves in and begins to exert control over the Regulatory Agency has been around since Woodrow Wilson wrote about it so some of this is a constant theme. The new things, i think, have been Citizens United and the entry of Corporate Power and the front groups that exert Corporate Power into our elections into amazingly dominant way
comparemela.com © 2020. All Rights Reserved.