An Ongoing Miasma: The Misdeeds of Big Banks

It has become a cliché to excoriate the big banks for their financial misdeeds, in large part because the public has grown tired of the litany of law-suits, controversial settlements, accusations of manipulation, cover-ups and other shenanigans.  But I'm going to write about it anyway, for a simple reason: this is no laughing matter, and it's not going away.

The inspiration for this post came from two stories, both posted on November 12th, detailing the latest corporate malfeasance.  In the first story, we learn that "some of the nation’s biggest banks ignore bankruptcy court discharges, which render the debts void. Paying no heed to the courts, the banks keep the debts alive on credit reports, essentially forcing borrowers to make payments on bills that they do not legally owe."  The second story informs us that a number of big banks have agreed to a $4.25 billion fine for illegal currency-rigging.

Ideas For Serving Deeply Vulnerable Populations

Yaay Equitable Financial Services!
There are a lot of wonderful things about the use of financial services as a tool to tackle poverty: it respects the dignity of the poor; generates a revenue stream for the lender; builds the borrower's credit; and allows borrowers to make investments, such as in a security deposit or computer purchase, that they would otherwise be unable to make.  One challenge, however, is that there is an inherent tension between making loans to the poor and maintaining high repayment rates: the lower the income of the borrower, the riskier the loan.  This is not due to any character flaws on the part of the poor, but rather the instability--financial and otherwise--that often defines their lives.

Given that our poverty-fighting mission, it is imperative that we figure out how to make loans to deeply vulnerable populations without taking on an unacceptable level of risk.  Many of our referrals come from caseworkers and agencies that work with the temporarily homeless, the mentally ill, ex-offenders and survivors of domestic violence, and there it is very frustrating to deny a loan application that can transform the life of the applicant--a loan to cover the cost of a security deposit for a homeless family, for instance.

Whence The Next Check?

The Things You Just Have to Do

Ask any CEO of a nonprofit about the worst part of their job, and they will almost certainly speak to the never-ending struggle to raise funds.  I come to that conclusion not only because it is how I respond to the question, but also thanks to nearly six years of interacting with my fellow nonprofit leaders. Grant reports, newsletters, proposals, lunch meetings, and calls with potential donors are all critical elements of our job descriptions; yet they, on the face of it, have nothing to do with the mission.

Almost all of us get into the nonprofit sector to serve others and solve problems.  What motivates us is knowing that our clients' lives are improved: we like to see the borrower, talk to the recipient of Financial Coaching, and read success stories.  Of course we all know that without money, none of this good work can be accomplished.  Still, as we spend hours staring at a computer or schmoozing, it can at times feel like you are more a glorified paper-pushed and beggar than agent of social change.

I Must Write

I need to write something, anything, be it profound or prosaic, masterful or awful. For once, I can't afford to worry about grammar, for I fear that unless I release the flow of stymied creativity, the poetry will languish and grow heavy, like so much ballast sinking me to the bottom of the sea.

I'm afraid to pause.  My fingers tremble, so let them strike the keys, and to do so violently if they must.  I am tired and frustrated and angry.  My inadequacy follows me wherever I go.  I question my ability to better the world; to put my best foot forward; to inspire others; to write poetry and prose of worth to others, and worthy of my lofty expectations; to live up to my ideals; and to persevere in the face of hopelessness.

Being Healthy Costs Money

My Fortunate Experiences with a Healthy Lifestyle

I'm an athlete, and have been one my entire life. Growing up, I played all the usual sports: soccer, baseball, basketball, and then, more seriously, tennis. For each sport I had lessons, practices, and games to which my parents drove me. There were the costs of gas, equipment, and any number of other expenses. As I got into my teens I began to really focus on tennis, which meant gym memberships, a focus on healthy food, lessons, clothing, gear, and travel to and from matches. None of this came cheap; no matter how frugal you are, these costs are unavoidable, especially if you want to perform at your best.

Nowadays I am an avid cyclist. I bike to and from work, and go for training rides whenever possible. I take advantage of everything I can to stay motivated and make the most of my riding: I keep my bikes maintained, have the requisite gear for any weather, and even use a coach. As a result of all this and more, I am able to lead a healthy lifestyle.

Many Are Less Fortunate

Even though I spend my days thinking about poverty and how to serve the poor, I've long taken it for granted that--when it comes to obesity and losing weight--it's a simple question of "eat less and move more." But an article in The Guardian, 'Poverty, not gluttony, is the cause of obesity,' forced me to remember that it is that much harder for the poor to be at a healthy weight. Why? Think about all the things I do, and have done, to stay fit. And then think about what you do: try to add up the cost of all the exercise books, food, clothing, equipment, and coaching you pay for, and you'll quickly realize the problem.

Sure, it's possible to be in great shape just by jogging and doing jumping jacks, but as the article rightly asks, "...why do a certain class of people feel that it is perfectly reasonable for them to require expensive, sustained, multi-layered help to keep fit," only to expect the poor to do so through a kind of Rocky Balboa, up-from-your-bootstraps fitness regime?  Yet the problem is even more insidious: the stress of poverty, the need to work two or even three jobs, the lack of access to healthy food and safe places to walk or run or bike--these are all significant, additional barriers.

A Different Kind of "Budgeting"

In our modern society, replete as it is with cheap, calorie- and fat-dense foods, it is all too easy to gain weight. Consider this: if your basal metabolic rate is 1,800 calories (meaning that's how much, at rest, you burn in a day), you can only eat three, 600 calorie meals without gaining weight. If you drink a soda with lunch, then, you've already consumed nearly half of your allotment for the meal; add in some fries or a cookie, and you've blown your budget!

Exercise makes things easier, since it increases your daily caloric burn, and therefore increases your "break-even" caloric intake, but the logic is the same: you can very easily, and very quickly, eat more than you burn. In fact, if your daily caloric surplus is 500 calories, you will gain 1 pound per week (conversely, with a caloric deficit of 500 calories, you will LOSE 1 pound per week). Put another way, one cookie and soda each day is enough to make you gain over 50 pounds per year!

Perspective Is Key

As I often like to point out, we all make bad decisions, but the poorer you are, the greater the ramifications of those decisions. The bottom line is that it's hard to lose weight in general (even with all the resources out there) but for the poor, weight loss is just one of a myriad of difficult issues--financial, emotional, educational--to address. Not only must we show more compassion, then, but we must also advocate for policies that give low-income families the tools they need to make healthy decisions and then stick with them. There are no quick fixes, to be sure, but we can start by adjusting our attitudes and seeing the problem from the point of view of the less fortunate among us.

The NY Times Editorial Board Gets It Right on Usury

Someone Needs to Stop the Bad Guys

As we've frequently discussed, we are very focused on putting the $100 billion / year predatory financial services industry out of business. Not only do predators like Advance America trap low-income, vulnerable families in a vicious cycle of debt, but at the macro level they are a serious drain on the economy; after all, every dollar spent on interest is a dollar not spent in the local, regional, or national economy. In short, predatory lending keeps the poor in poverty, it harms the economy, and it perpetuates the divide between the "haves" and the "have-nots."

The Problems We Face

When it comes to putting the bad guys out of business, we face several challenges. First, these predators are well-resourced and possess a powerful lobby. Rhode Island is a case-in-point: despite bi-partisan support over the past 4 years—as well as a coalition of several dozen non-profit, religious, and community groups—we have been unable to cap the interest rate that payday lenders can charge at 36% (the current rate is 261%). Second, legislation has its limits, and can often look like a game of "Whack-a-mole"; every time we rein in one predatory practice, another one pops up. Third, a patchwork of state regulations make it hard to ensure that consumers receive consistent, across-the-board protections from the worst offenders.

And finally, these predators have a massive brick-and-mortar presence in low-income communities (consider, for instance, that in many states there are more payday loan shops than there are McDonald's! csun.edu). This one makes it hard for us to compete for customers against these predators; the convenience and immediacy of getting a payday loan is something we will simply never be able to replicate. Why? For the simple reason that—because we care about a client's ability to pay—we actually review their application. In contrast, payday lenders require little more than a pulse, a bank account, and a paycheck—and I like to joke that they are flexible on the pulse!

NY Times Endorses a Potential Solution

This is why we are delighted that the NY Times EditorialBoard has endorsed a plan "that would adopt the 36 percent [interest rate cap] standard for all consumer transactions, including those involving payday loans, mortgages, car loans, credit cards, overdraft loans, and so on." If written correctly (and that is a big "if"), the proposed legislation would make it very simple for lenders to understand and comply with regulation while creating a universal consumer protection. One big barrier to our scale, in fact, is that each state has its own usury limits, and they are often confusing and contradictory. I don't even want to think about the issues this would raise between state's rights and the power of the federal government, but at the end of the day only federal action can truly create a level playing field for all (and it will save us a lot in legal fees!).

You can view the original NY Times piece here: http://www.nytimes.com/2014/10/19/opinion/sunday/a-rate-cap-for-all-consumer-loans.html

Reconsidering Need: The Case For Personal Loans

When I started Capital Good Fund in 2009, I was inspired by Dr. Muhammad Yunus’ model for using micro-business loans to tackle poverty.  The idea immediately struck a chord with me: by tapping into the entrepreneurial spirit of impoverished families, we could enable them to become self-sufficient.  With this in mind, we started off by offering loans of up to $3,000 for income-generating activities, such as home repair or catering.

It didn’t take long, however, for me to see that impoverished families had other, perhaps greater, needs. As we spoke with our low-income clients and conducted our own research, we realized that there is a $100 billion predatory financial services industry—payday lenders, check cashers, rent-to-own stores, auto title lenders and others—that takes advantage of the reluctance of mainstream firms to serve the low-income consumer. In addition, we discovered in our meetings with community partners that many immigrants couldn’t afford the $680 cost of applying for US Citizenship. As a result, they either deferred their dream or sought out predatory lenders to finance the process.