For over 25 years I worked in the consumer payments and credit businesses — first as a management consultant, then as a payments technology executive. During that time I became increasingly uneasy about how the infrastructure we provided was serving the consumers who used it to construct their financial lives.
We made impressive strides in broadening the acceptance and convenience of electronic payments, and the variety and availability of credit products. But it isn’t clear how much these advances have made consumers’ lives better. In particular, the many Americans who experienced wage stagnation may not have benefitted from the reduced friction and increased complexity that has accompanied their spending and borrowing. The more we take measure of their financial health, the more we see credit having been substituted for assets and the more pervasive leaks in household wealth and resilience become evident. In 2011 I joined the inaugural executive team at the CFPB because I felt our industry had done more harm than good for those in the bottom half of our economy.
I wanted to find ways to do better.
At the CFPB I found dedicated and talented colleagues with a shared interest in establishing empirical foundations for a few interventions that could make lasting improvements in Americans’ financial lives. In many ways we accomplished a remarkable amount in a short time, righting substantial wrongs and building a role model for what a modern government agency can do. In other ways we fell short — over-reaching in some areas, under-reaching in others. And now the agency’s future direction is uncertain, threatened by ideologues out to prove that government can’t, simply because it is government.
But my experience as a regulator also helped me recognize that mere protection — in the form of mandating disclosures and proscribing harmful products or practices — can still leave consumers without the tools they need to keep their financial footings. In the end, better consumer outcomes will depend on disruptors who provide better tools, and industry’s recognition of its role and responsibility for consumer’s financial health.
The Entrepreneur-in-Residence role at Financial Health Network seems the perfect opportunity to explore solutions in one area of household finance I’ve come to know intimately, and where, I believe, innovations by business, technologists, and regulators can all make a positive difference: the cash crunch too many families face at the end of the month, when their bills come due and their bank balances approach zero.
This blog will be part of that exploration.
Future installments will examine particular aspects of our payment and credit systems that may foster and exacerbate the challenges of paycheck-to-paycheck living:
- I’ll start with what I learned first hand as a bill payment processor about cash-strapped families’ challenges at the end of the month when bills come due.
- Several posts will look at overdrafts, the banking service that has seen phenomenal growth over the last thirty years, generates twice the fees payday loans do, and that cross-subsidizes free checking for many of us. I’ll focus on overdrafting as both a payment technology embedded in our now creaky payment system and as a behavior that can defy explanation, particularly among 9 percent of checking account holders who overdraft almost once a month and who account for 75 percent of all overdraft fees.
- I’ll dig into the debit card overdraft opt-in choice most banks give new account holders and how unlikely it is that most consumers (or their banks) understand its implications.
- I’ll highlight lessons from the leading virtual banks, who have introduced new tools to help the cash-strapped and who, without exception, do not offer overdrafts.
- Finally, I’ll look at unacknowledged needs of families that struggle the most financially, emerging tools that are poised to meet those needs, and why a checking account that incorporates them should be worth paying $20 a month for.
These posts will draw on my business experience, on research I helped initiate or conduct while at the CFPB, and on Financial Health Network’s pathbreaking work on measuring and fostering financial health. I hope you’ll join me on this journey.
Explore the Ends of the Month Series on the Financial Health Network website.
