United States House of Representatives Hearing on “An Examination of the Availability of Credit for Consumers”
Originally posted at: financialservices.house.gov
By Dr. Kimberly Manturuk, Research Associate, University of North Carolina Center for Community Capital
On September 22, 2011, Dr. Kimberly R. Manturuk from the Center for Community Capital at the University of North Carolina at Chapel Hill provided testimony before the United States House of Representatives Subcommittee on Financial Institutions and Credit for Consumers during a Hearing on An Examination of the Availability of Credit for Consumers. She highlights FlexWage, specifically the WageBank product, as an emerging product providing a solution in this space.
Below is an excerpt from the transcript.
Emerging Developments in Consumer Credit
The most widely-used credit product across all households is a credit card. As of 2009, 63% of North Carolina residents had used a credit card within the prior two years6. In spite of their widespread use, many customers report being dissatisfied with credit cards because the interest is compounding, and it is not clear how much the customer must pay each month to retire the debt. On the other hand, banks and credit unions offer credit products with fixed terms and a clear repayment schedule. However, underbanked consumers often do not qualify for such loans. When looking at loans by credit score quintile, for example, only 6% of loans made to people in the lowest quintile came from a bank or credit union. The result is that many underbanked consumers turn to alternative financial services to meet their credit needs. However, it is clear from our research at the Center that many of these so-called fringe credit options available to underbanked households, such as payday loans or pawn loans, do not meet the needs of most consumers.
There are some emerging products in the small-dollar consumer credit space, however, which offer reasonable terms and conditions while retaining profitability for lenders. I’d like to conclude my testimony by highlighting a few of these products.
FlexWage works with employers to give workers access to a payroll card with a linked salary-advance feature, an alternative to the traditional payday loan. Through its WageBank product, the company makes available wages that have been earned but not yet paid. Customers are charged a flat convenience fee for the “predisbursement” of earned wages. There is no loan and nothing to repay. The funds are distributed on a Visa-branded prepaid card to the employee.