Asset Building News Week - October 7, 2016

Featured Story: CFPB Issues Final Rule Regarding Prepaid Accounts

The CFPB has issued its final rule regarding prepaid accounts. Effective October 1, 2017, providers will have to provide consumers with “upfront information about prepaid account fees…[and also] creates a number of new legal rights prepaid account users, including protections in case of errors, loss, or theft.”  

Highlighting last year’s RushCard debacle, the Atlantic’s Gillian White notes just how many Americans have come to rely on prepaid cards to either complement or supplement a traditional checking account. “According to a report from Pew by 2014, around 23 million Americans were regularly using reloadable cards, and more than one-quarter of those users were Americans who didn’t have bank accounts and were mostly low-income and black,” White writes.

And while the demographics of users vary, their complaints do not. Reports of excessive fees, unauthorized transactions, scams, and trouble opening and closing accounts were common in the 4,000 plus complaints about prepaid cards the CFPB has received since 2011.

The rule has drawn the ire of industry leaders, with particular disapproval of the new overdraft protections. If an overdraft option is available for the account, operators will have to treat it like credit and provide the consumer with appropriate protections.

“They’ll need to determine a customer’s ability to pay, provide a monthly statement, and offer reasonable payment terms and fees (which can’t exceed 25 percent of the total credit line),” explains White.

NPR’s Yuki Noguchi spoke with Brad Fauss, president of the National Branded Prepaid Card Association, who says the rule will limit consumer choice.

“Prepaid cards...are a low-margin business, and requiring long-form paperwork will also eat into providers’ profit margins,” which will, according to Fauss, make it more expensive to provide the product.  

Related Feature

The Center for American Progress released a brief highlighting the origins predatory lending and its consequences. CAP’s Joe Valenti and Eliza Schultz applaud the CFPB for putting forth rules to regulate this industry, but also emphasize the importance of strengthening them and putting forth additional rules and legislation to fully address the precariousness of low- and moderate-income families’ financial stability.

Comments on the CFPB’s proposed payday lending rule will close tonight, October 7 at midnight. If you haven’t already done so, submit your comments here, here, or here.

News Highlights: Welfare Spending and Goal-Oriented Planning

The States That Siphon Welfare Money to Stop Abortion

Seven state—Missouri, Indiana, Ohio, Pennsylvania, Michigan, North Dakota, and Texas—use federal TANF dollars to fund crisis pregnancy centers (CPCs). Despite what the name suggests, CPCs actively discourage women seeking emergency services from getting abortions, often through deceptive practices. “[O]ver the past four years these seven states have diverted more than $30 million of federal money meant for welfare to anti-abortion programs that fund crisis pregnancy centers,” writes ThinkProgress’ Bryce Covert. That is $30 million of federal money that did not go to cash benefits or other more effective alternatives that might help a family climb out of poverty.  

How More Affluent Families Get Welfare for Pricey Private Colleges

At Albion College, a private liberal arts college in Michigan, 63 percent of in-state students receive a scholarship or grant funded almost entirely by welfare money. The median household income of theses students is about $76,000. “In all, Michigan spends about $100 million annually in welfare money from Washington on college aid,” writes Mike Wilkinson, “including millions that benefit families earning over $100,000.” In a state where only 18 out of 100 families receive cash assistance, diverting TANF funds for college funds is questionable decision—especially when the families aren’t exactly ‘needy’.  

Welfare and the Underappreciated Value of Long-Term Thinking

Rather than focus exclusively on putting people to work, the welfare office in Ramsey County, Minnesota is emphasizing long-term planning in order to break the cycle of poverty. Counselors and clients create individualized plans together, but the client is given the space and support to take ownership over the process. The growing body of research surrounding poverty's impact on a person’s coping and organizational skills informed Ramsey’s shift from focusing on client participation to progress. While “the county has been coming in above the state performance targets...two years in a row. By other measures, the picture is less clear.”

News in Brief: Gift Cards for College, Community Policing, Organic Produce, and More

• Better Life Lab released its Care Report, which examines the cost, quality, and availability of childcare across the United States.
• Mistakes in medical billing are common—and costly. One startup is trying to make dealing with them a lot easier. Tess Townsend reports for Slate.
• Reporting for NPR’s All Things Considered, Anna Scott interviews a Los Angeles police officer about the city’s new approach to homelessness.  
• Individual consumers weren’t the only ones affected by Wells Fargo scandal reports Inc.’s Helena Ball.
• “Giftofcollege.com, a registry for online gifts to 529 accounts, will make plastic 529 gift cards available at Toys “R” Us and Babies “R” Us retail stores,” writes the New York Times’ Ann Carrns.
• “Washington College in Maryland is planning to cut tuition fees by up to $2,500 a year for families who have saved into tax-favored savings vehicles like 529 plans.” Richard Reeves and Nathan Joo from Brookings believe this is a mistake.  
• Is Airbnb a way for the black community to meet the rising financial costs of staying in their homes, or is it fueling gentrification? The New Yorker’s Lauretta Charlton writes.
• Many cities across the country are facing an affordable housing crisis, LA Times contributor Constantine Valhouli believes micro-apartments could help—as long as cities put the proper regulations in place.
• Jose Quiñonez, founder and CEO of Mission Asset Fund, sat down with Rachel Martin on NPR’s Weekend Edition to discuss the work of making the financially invisible, visible.
• Writing for PBS, Kamala Kelkar reports on the disconnect between consumers’ growing desire for fair trade organic produce and a lack of concern with the working conditions of the laborers who do the heavy lifting.
• NPR continues its series, Stretched, on the challenges facing working parents who have to juggle raising a newborn and work in the absence of adequate government social supports.