Serving the Underserved

The UnBanked,

UnderBanked,

and

UnBankable

Presented by John Annaloro, President/CEO WCUL

Debunking Myths

Financial institutions are not

instruments of social engineering,

and have no government mandate (charter obligation) to be an agent

of redistribution of wealth from

rich to the poor.

Credit Unions

Were Not Created to Serve the Poor

Rather, CUs enabled by law as depositor controlled, cooperative financials that ran on a not-for-profit basis.

Legislative intent language extolled the benefits of CUs to the person of “modest means”— meaning people not rich enough to “own their own bank.”

Service to people of “Modest means” is not a required legal mandate for credit unions.

Serving the Underserved

is not required, BUT..

• Skill and products aimed at serving the underserved is a necessary survival skill for financial institutions.

• Building economic self-sufficiency is good for America, and the long-term economic health of our nation.

• Consistent with historical CU philosophy about providing economic opportunity to all.

Why the Pressure on Credit Unions?

• Competitors / Banks - - forcing CUs into less-profitable lines, keeping mainstream (large-dollar savings and lending) for themselves.

• Government Agencies - - Public Policy logic, resulting in political pressure

• Consumer Groups - - – Some dependent on entitlement funds from CRA and

wrongfully assume CUs are guilty of the “community looting” committed by banks.

– Need more participants in worthy programs

“Serving the Underserved”

is “Good Business”

Banks believed niche markets should be served profitably

Regulators & consumer protection groups looked away

1. Payday lenders in business with or subsidiaries of banks2. Subprime mortgage loan crisis3. Credit card tactics labeled abusive to consumers4. Fleecing of the military5. Student loan rates soared, illegal kickback to colleges6. Cost of “risk-weighted” services skyrockets

Result: Wrong Way increases pressure on CUs to fill needs w/ honest, low-cost services

Congress steps in 2007, additional regulatory burden on the wayfor all

Unbankable Clock –

Settings for October, 2007

One UNBANKABLE baby birth every - 7 seconds

One BANKABLE/ACCOUNT-HOLDING adult death every - 13 seconds

One UNBANKABLE international migrant (net) every - 27 seconds

Net gain of one UNBANKABLE person every - 11 seconds.

Net gain of 2.8 million new UNBANKABLES every year.

Are CUs Keeping Up?

Annual WA population growth = 2.2%CU net new member growth to keep market share = 2.2%

1/3 Unbankable, Unbanked, UnderbankedAttract with:

– Appropriate programs– Welcoming service culture– Financial education

2/3 Bank-ReadyAttract with:

– Better rates– Branch convenience– Marketing & sales

Number of Unbanked, Underbanked

• General Accountability Office (GAO) = 56 million

(1/5th of all adults in the nation)

• Other studies = low 20 million, mid +40 million, high of 73 million

• Despite differing estimates, it is undisputed that tens of millions of adults in the United States are either unbanked or underbanked or unbankable

Who are the Unbanked,

Underbanked & Unbankable?

61 million under age 1425 million illegal immigrants

– 12M illegal immigrants (GWB Admin statistics)– 38M illegal immigrants (Californians for Population Stabilization)– 10M non-English speaking (1/3 Hispanic)

7 million people were behind bars, wearing tracking devices, probation or parole 1 million homeless any week (3.5M year)

25 million bad credit history, FICO 599 or lower (75% adults over 18, 725 mean)8 million bad deposit account history (Chexsystems)2 million declare bankruptcy (2005)

2 million newly divorced each year (1:5 adults divorced at least once)23 million file disability claims, can’t work/pay each year (iii.org)14.8 million major depressive disorder affects (6.7% pop. Over 18 NIMH)7 million annually unemployed with no new job to go to (BLS)

Transition Into Adulthood

• Emancipated teens and young adults can take up to 10 years to attain “bankable” self-sufficiency

– Not all transition successfully

• College students graduating with increasingly high debt loads

• Average 4-year debt $19,237 (2/3rd of all graduates)• 1/4th over $25,000• 1/10th over $35,000

• Graduates & Professional Degrees

$27,000 to $114,000

Undergraduate Education Debt

Undergraduate Education Debt Institution Level & Control Percent Borrowing Cumulative Debt Overall Total (4, 2 and < 2 year) 55.5% $15,766 4-year Total 65.6% $19,202 4-year Public 61.7% $17,277 4-year Private Non-Profit 72.8% $21,957 4-year Private For-Profit 87.3% $28,138 2-year Total 37.4% $9,897 2-year Public 33.2% $9,387 2-year Private Non-Profit 69.1% $12,326 2-year Private For-Profit 90.0% $12,107 < 2-year Total 67.1% $7,271 < 2-year Public 34.0% $7,243 < 2-year Private Non-Profit 26.5% $4,854 < 2-year Private For-Profit 77.3% $7,311

Source: US Department of Education

Total Education Debt

for Graduate Students

Graduate Education Debt All Education Debt (Grad & Undergrad)

Graduate & Professional Degree Programs

Percent Borrowing

Cumulative Debt

Percent Borrowing

Cumulative Debt

Total 60.1% $37,067 70.1% $42,406 Master's Degree 58.4% $26,895 69.3% $32,858 Doctoral Degree 51.0% $49,007 58.3% $53,405 Professional Degree 86.5% $82,688 88.4% $93,134 MBA 53.0% $35,525 63.6% $41,687 MSW 76.5% $27,136 81.0% $37,029 PhD 40.0% $36,917 46.8% $41,540 EdD 53.4% $49,050 65.7% $47,725 Law (LLB or JD) 87.7% $70,933 89.7% $80,754 Medicine 95.0% $113,661 95.0% $125,819

Source: US Department of Education

Public Policy & the Unbanked

US = Compassionate NationWant to help all. Societal Goal: Eliminate poverty in America

Cost of Government “safetynets” too much for taxpayers to fully afford: Welfare, Medicare, Social Security, Housing Assistance, etc.

Pressure on private sector to:– Provide jobs, access to cash, subprime or risk-based lending, help acquiring

assets.

Personal Assets = Net Worth = Lower cost of Government Provided Safetynets

60s & 70s: War on Poverty70s & 80s: Welfare to Work Programs90s to present: Homeownership Society

Contemporary Politics:

Clinton Administration

President’s Economic Advisors invent “Homeownership Society”

Resolution to future Solvency of Social Security:

(Homeowners have resources in retirement = less gov. dependency)

Source: Federal Reserve, US Bureau of Labor & Statistics, Bureau of Economic Accounts

Contemporary Politics:

Bush Administration

• 2000 GWB makes Homeownership one cornerstone of domestic economic policy

• Republicans and Democrats unite in Public Policy vision

• Asset-building becomes common quest

Bush Administration

Over the long-term, homeowners become wealthier than renters

Bush Administration

Lowest income groups get best benefit from home ownership

Source: Heritage calculations based on U.S. Federal Reserve Board, Survey of Consumer Finance (1998)

Test of Time

Does an Asset Building basis for Public Policy Work?

1945 was the first year for which data is available. 1945 average net worth for American households was $5,084, climbing to $186,389 by 2005. Chart is adjusted for inflation. Data on net worth is the market value of assets owned by households and non-profit organizations obtained from the Federal Reserve. The data is converted from nominal to a 2000 base year using the CPI, then divided by population. Non-profits added because Fed calculates that way.

Source: http://www.angrybear.blogspot.com/

Real Net Worth Growth by President

Source: http://www.angrybear.blogspot.com/

Both Political Parties Agree on Economic Policy Which is Best at Asset Building

Source: http://www.angrybear.blogspot.com/

Best = Pressure on Gov. Agencies & Private Sector to make it happen (Twisting the arm of Financial Institutions and their regulators)

CUs Benefit by Serving All

• Skill, desire and products aimed at serving the underserved, underbanked, unbanked and unbankable is a necessary survival skill for financial institutions

• High percentage of population goes in and out of this category

• Building economic self-sufficiency is good for Americans, and the long-term economic health of our nation

• Competency is necessary for long-term institutional growth and health

Serving the Underserved,

UnBanked,

UnderBanked,

and

UnBankable

Presented by John Annaloro, President/CEO WCUL