Aug 03, 2013 Sean Albert
Across the United States, there has been a sizable portion of the population labeled as underbanked, unable to take out traditional lines of credit due to poor economic conditions. As a result, many of these individuals often have difficulty obtaining loans or capital to make major purchases such as cars or homes.
It can be a cycle that is difficult for consumers to escape from. However, the Consumer Financial Protection Bureau (CFPB) recently announced that it is exploring ways in which it can promote better financial support for underserved communities. In the CFPB's annual Financial Literacy Report, the agency indicated that it is studying the effects that prepaid card programs could have on the underbanked.
In particular, the report stated that by using bundled financial products that use prepaid cards with savings functions, underbanked individuals may be able to responsibly improve their consumer credit scores.
"This research has entailed a scan of the field to build a comprehensive database of existing strategies, products or programs that seek to help consumers build positive credit histories and savings through bundled products and bundled services," the report stated.
Starting sometime this summer, CFPB officials plan to commence the second phase of the project, which will include two program trials that will determine how effective the bundled services are in enhancing consumer credit reports. In 2015, a pilot project will be launched based on the research and information gathered from the pending trials.
CFPB should consult with alterative lenders
According to the latest data from the Federal Deposit Insurance Corporation (FDIC), 20.1 percent of American households were categorized as underbanked in 2011. That accounted for about 24 million U.S. families. Close to 30 percent of homes were reported to not have savings accounts as well.
However, many individuals are turning to alternative financial services, such as short term lending, for monetary support. The source indicated that 25 percent of households used the service of alternative institutions in 2011 at least once.
This shows just how sensible it is for the CFPB to work with alternative lending outlets to find solutions to assist the underbanked. Discussing policy changes with industry leaders could help them tailor products to better serve their customers. In turn, it may provide short term lenders and prepaid card enterprises with a more financially robust client base that could become regular customers if they are provided quality service and financial products.