The documentary “Spent: Looking for Change” debuted online a few months ago and quickly garnered acclaim and nearly 10 million viewers. The film traces the challenges of four working families living on the edges of the financial mainstream. The four stories, two of which take place in Texas, each represent the obstacles faced by millions of working Americans who lack a bank account, have thin or damaged credit profiles, or use high-cost payday or auto title loans.
“Spent” tells the hard truth about our outdated financial services system that neglects or poorly serves close to half of the U.S. population and highlights the need for Texas and the nation to reform it through public policy and coordination with the nonprofit and private sectors.
Americans with a variety of backgrounds and employment histories are relying on high-cost fringe financial products and services to make ends meet. They are immigrants, freelancers, independent contractors, small business owners, the underemployed, workers juggling multiple jobs, young adults saddled with student loan debt, or those who simply have made a few financial mistakes.
Earlier this year, the Center for Public Policy Priorities released the first year-to-year analysis of Texas’ payday and auto title lending data and found that Texans paid more in payday and auto title loan fees in 2013 compared with 2012 and remained in debt longer, even though they took out fewer total loans during that same time. Overall, the number of new loans made to Texas consumers fell by 4 percent, to just under 3 million new loans in 2013, but the fees charged to Texas consumers rose by 12 percent, to just under $1.4 billion. Loans are getting costlier for Texas consumers and trapping them in debt longer.
While the Texas Legislature has failed repeatedly to pass common-sense rules to govern payday and auto title lenders, the federal Consumer Financial Protection Bureau is poised to propose rules that could make the high-cost marketplace more transparent, fairer and less destructive to the balance sheets of working Americans. While the bureau should act to ensure that lenders verify the consumer’s ability to repay the loan on time, it can also create some space for lower-cost short-term products to emerge by reducing regulation on these products, and in turn, allow them to begin to compete with the typical payday and auto title loans that cost 500 percent annual percentage rate.
We know, and as “Spent” highlights, access to loan capital is crucial to creating economic opportunity. Right now, we have a classic market failure, in which we have broad access to financial products that make consumers worse off, and not enough financial products and services that improve credit scores, restore financial stability, and help consumers save and invest for the future.
With 65 percent of Texas consumers with subprime credit scores and a sizable share of Texas households unbanked or vulnerable to high-cost payday and auto title lending, Texas must confront these challenges through public policy and coordination with the nonprofit and private sectors. In particular, Texas can support lower-cost alternative products, link classroom financial education with children’s savings accounts, remove barriers to household savings and support microenterprise. These steps would not only bring more Texans into the financial mainstream, but also support a thriving economy.
This was published earlier in the Austin American-Statesman on July 8th, 2014.
