CARD Act Gives Consumers a Break
I want you to think back to the very first time you opened your mail to find that golden ticket: a pre-approved credit card offer. Was it been everything you hoped it would be? Or did you fall for some of the oldest tricks in the book…
Were you the college freshman who now realizes that the free pizza, Frisbee, and bottle opener at the credit card company’s fall expo booth might have actually cost you more than you thought (cough, 70” flat screen TV with 24% APR, cough)? Did you find out the hard way that “due on March 17th” actually meant “due by 9:00am on March 17th, so it actually needs to be here on March 16th… which conveniently falls on a Sunday, so let’s have it here by close of business on Friday the 14th”? Or maybe it just took a little too long to realize that consistent $30 monthly payments on your $800 couch would make your payment plan longer than your sofa’s life.
Every year, a new crop of credit card users finds themselves in these types of predicaments. Fortunately, the new Credit Card Responsibility and Disclosure (CARD) Act now makes each of these situations much less likely to occur.
The legislation is complex, but the highlights include limits on interest rate hikes, broader definitions of “on time” payments, new rules for pre-existing balances, and requirements on disclosures and extending credit to young adults. No more pre-5:00pm deadlines. No more interest rate hikes without 45 days of notice. No more credit card reps hiding in wooden horses allowed within 1,000 feet of college campuses.
The CARD Act’s transparency requirements may be particularly beneficial to small business owners in offering them an opportunity to strengthen their personal credit histories, further allowing them the opportunity to finance new employees, purchase inventory, or open a storefront. As an organization, ACCION USA’s goal is not only to provide small business owners with a transparent financing alternative to credit cards but also to teach them the necessity of managing credit card debt. The underlying message is simple: spending and paying responsibly keeps money in your business. And money in small businesses means economic recovery for our country.
Let’s hope that the CARD Act’s transparency requirements will mean the same thing.
Tags: accion usa, CARD Act, credit card, Financial Education, interest rates, legislation, microfinance, money management, new law, small business
Please Mr. President, More Support for Microloans
“The true engine of job creation in this country will always be America’s businesses,” said President Obama in last night’s State of the Union address.
While I couldn’t agree more, I wished that the President drew increased focus to America’s microbusinesses — the “mom-and-pop” establishments (typically with fewer than five employees) that are the lifeblood of communities nationwide. These are the businesses that start when “an entrepreneur takes a chance on a dream, or [when] a worker decides its time she became her own boss.”
Mom-and-pop microbusinseses are the true drivers of job creation.
Eighty-seven percent of all American businesses are, in fact, microbusinesses, which represent 18 percent of all U.S. private employment (according to the Association for Enterprise Opportunity). These are the businesses that have proven to support job creation in previous economic downturns, and will be the businesses that guide America out of the current recession.
President Obama’s pledge of $30 billion in funding to help community development banks get critical capital into the hands of small business owners is a step in the right direction for American microbusinesses. It will be a bigger, stronger step in the right direction if microlenders like ACCION USA are included as part of the solution along with community banks. We are ready, and a proven path to deploy loans to deserving business across the country.
Regardless, the President’s commitment to small businesses was abundantly clear, and the importance of ACCION USA’s work with small businesses in good and bad economic times was reinforced. We’ll renew our focus on getting more attention in Washington for microlending programs, and remain committed to the small businesses we serve.
Honoring a Community Development Lion
Sen. Kennedy meets with an ACCION USA client from Lawrence, Massachusetts in 1999.
It is with heavy hearts that we at ACCION USA heard the news of Sen. Edward Kennedy’s passing.
As a great supporter of ACCION USA, Senator Kennedy will be missed dearly. His commitment to economic justice made him a natural ally to the microenterprise and community development fields. And as he did throughout his 43-year career in the United States Senate, Senator Kennedy put his beliefs into action – and got results. Among his long list of accomplishments, Senator Kennedy:
- Introduced legislation that created the SBA’s Program for Investment in Micro-entrepreneurs (PRIME), which has provided assistance to organizations that help low-income entrepreneurs for nearly ten years
- Fought to keep intact the Community Development Block Grant (CDBG) program of the Department of Housing and Urban Development
- Consistently pushed for increased funding of the Community Development Financial Institutions (CDFI) Fund, work which appears to be paying huge dividends in the FY2010 budget.
Although Senator Kennedy is no longer with us in body, his advocacy and work on behalf of low-income Americans will endure for decades. And so on this day of mourning, we remember the words of Senator Kennedy’s iconic 1980 speech, in which he vowed that “the work goes on, the cause endures, the hope still lives, and the dream shall never die.”
ACCION Europe? Sign me up.
This just in from Jesse Hilenski in the Atlanta office:
If I kept a monthly journal (which I don’t), my entry for June 2009 would probably swallow up half of my space for July. My employer, ACCION USA, announced an industry-changing partnership with a highly respected member of the microfinance community, Kiva; my baseball team, the Atlanta Braves, made an ignominious swan dive into the sea of mediocrity; and my idol, the King of Pop Michael Jackson, passed away under the most curious of circumstances, further tarnishing the legacy of one of the most entertaining human beings to ever walk on this planet. All of these things, however, would fill less space than the two-week, lightening-tour of Europe I took with my girlfriend to celebrate her graduation from Emory University. From June 7th to the 20th, she and I went to eight different countries, took close to 1,000 pictures, and burned probably 1 million priceless memories into our brains that will stay with us for the rest of our lives.
Even in the midst of all this European bliss, however, my mind could not stray far from the subject of microfinance and its exciting future. Over the past 20 years, microfinance has proven it can succeed in developed economies like that of the United States. ACCION USA alone has disbursed close to $117 million in loans since 1991, with an over 90% repayment rate. Success like that drove Kiva to expand its unique online lending program into the U.S. market in conjunction with ACCION USA. So if microfinance can work in both the developing and developed worlds, what’s the next step in its evolution?
While I was in Europe, going from place to place, I wondered how the countless small businesses we encountered along the way, selling water and t-shirts and panini on old town squares, were financed. As it turns out, more and more small businesses in Europe are turning to microfinance institutions (MFIs) for their funding than ever before. According to the European Microfinance Network, MFIs across the EU disbursed 42,750 loans in 2007, a 14% increase from 2006. In fact, microfinance appears to be growing fastest in Western Europe, the region Jess and I were traveling through most. In 2007, the two European countries which saw the biggest increases in microloans disbursed were France and Germany, with 24% and 31% increases, respectively.
Despite these astonishing increases in output, it seems as though microfinance in Europe (and the developed world as a whole) is still just barely scratching the surface of its potential. There are around 25 million small businesses in the EU, 91.5% of which are microenterprises with less than 9 employees, according to Evers-Jung, a German Bank Consultancy and Research Company. To compare, there are 22 million microenterprises in the United States, and the Aspen Institute claims that over half of these lack adequate financing and/or training.
Given such a large market to lend to, it appears entirely possible that the growth witnessed in 2007 across the European and American microfinance sectors could be maintained or increased. While the global financial meltdown makes such a prospect harder to believe in 2009, global microfinance has proven over the past four decades to be in it for the long haul. And count me in.
Credit Card Accountability Now!
One day, 4 years ago
I receive a pre-approved credit card offer. <cue excited squeal> My 20 year old self had never signed up for a credit card before so I call the phone number on the letter. I speak with a very nice customer service person. He explains that for the first 3 months I would have 0% APR on purchases and balance transfers. After 3 months I would pay interest on purchases, but I wouldn’t have to pay interest on balance transfers for 6 months. Awesome! I ask some more questions that I’d prepared, and it looks like I have all the relevant information. So I sign up for the card, use it to pay some bills, and transfer $500 to have some just-in-case cash since I won’t have to pay interest for 6 months. Brilliant, right?
**** Fast forward 3 months ****
I’ve only purchased $75 with my card because I know if I don’t want to accrue interest I need to pay this down before my statement comes (electronically to save paper, of course). I pay the $75, but the statement has accrued interest. WHAT!? There must be a mistake, so I call customer service. Another very nice customer service person tells me that my payments pay down the balance transfer first and then card purchases. WHAT!? You have got to be kidding… but he’s not. Awesome. I didn’t even know to ask that question. What a nasty trick! Why hadn’t the first customer service person made this clear to me? Does this happen to other people? Am I just incompetent? I feel angry, hurt, and duped. I pay back all the balance transfer and the purchase amounts, and sit down with a pint of ice cream…
******************************************
What do we want? Credit Card Accountability and Disclosure!
But first a message from my favorite fake news pundit
The Credit Card Accountability and Disclosure Act (CARD Act) aims to:
- Prevent Unfair Increases in Interest Rates and Changes in Terms
- Prohibit Exorbitant and Unnecessary Fees
- Require Fairness in Application and Timing of Card Payments
- Protect the Rights of Financially Responsible Credit Card Users
- Provide Enhanced Disclosures of Card Terms and Conditions
- Strengthen Oversight of Credit Card Industry Practices
- Ensure Adequate Safeguards for Young People
- Enhance Penalties for Non-Compliant Credit Card Companies
- Provide Gift Card Protections
- Encourage Transparency in Credit Card Pricing
- From US Senate Committee on Banking, Housing & Urban Affairs
A more detailed, but very reader-friendly explanation of the bill can be found here.
The CARD Act would have protected me in various ways.
- As a 20 year old, a person over 21 would have to provide a signature for the card.
- I may not have even received that offer by mail because the bill would restrict pre-approval offers to those under 21.
- Payments would first be applied to the credit card amount with the highest interest rate.
- Terms of the credit card would be disclosed in plain written language and in plain sight.
Small business lifeline…
Many small business owners put business debt on their personal credit cards. Not only does this mean an APR of up to 30% on their debt and the potential for sudden, baseless terms changes, but it also can hurt their ability to access other business working capital. Lending institutions, banks, SBAs, and even ACCION USA, look at credit reports to process loan applications. A person with business credit card debt of $65,000 (which I’ve seen before) probably has a low percentage of available credit and already has a big monthly payment (whose terms could change any day). Plus, after you spend over 35% of the cards limit your credit score starts decreasing. Oy gevault!
Help is on the way
These are some great tips gems of advice
Credit Card Tips in a Recession
Also important
Make your voice heard in the Senate! Go here to add your name to the petition of people supporting the CARD Act. Or contact your senator directly. Find your senator here. If you want me to email you a letter to send to your senator leave a comment (I’ll see your email address on the back end so you don’t have to write it in the comment) and I’ll send you one. Couldn’t be easier.
Let’s show those credit card companies what we’re made of!
Tags: CARD Act, Colbert, credit cards, small business
Microfinance Leader Headed to Obama Administration
María Otero, President & CEO of ACCION International and Director, ACCION USA
Congratulations to ACCION International President and CEO and ACCION USA director María Otero. Yesterday President Barack Obama announced his intention to nominate Ms. Otero for the position of Under Secretary of Global Affairs in the U.S. Department of State. In this role she will oversee a wide variety of global issues, from democracy and human rights to population and the environment.
During her long tenure at ACCION, Ms. Otero has been a tireless advocate for microfinance in the United States (to say nothing of her critical role in ACCION International’s global expansion). Since taking over the leadership of ACCION International nearly a decade ago, the U.S. ACCION Network’s active portfolio has grown more than ten-fold (from less than $4 million in 1999 to now over $40 million).
Please join us in wishing Ms. Otero well as she begins the transition into this new role.
Tough Economy, Tough Questions
For all that missed this week’s New York Magazine cover story, Gotham residents are wondering what’s to become of them now that the flow of money in the city has become more like a trickle. Will their marriage survive economy-induced stress? Is now actually the time to buy? In these times, the only thing that’s certain, is well – uncertainty.
However, thanks to an announcement by the Mayor Bloomberg’s office today, fewer New York City small business owners will have to ponder the possibilities. The New York State Economic Development Corporation and ACCION USA are making small business loans more readily available to local entrepreneurs via a reduced-fee loan fund. Read: More New York City small businesses will have the funds they need to hire employees, survive the economy, and even increase taxable city revenue.
That’s good news for both ACCION USA, who gets funding dollars to continue lending, and area small businesses, which get easier access to essential capital. While the partnership won’t answer all of the city’s questions, business owners that take advantage of the small business loans offered won’t have to wonder if they’ll meet payroll this month, or be able to build that new Website they planned.
Now, can anyone answer MY burning recession question…where can I find a good “economic stimulus” shoe sale?
Looking for Some Inspiration?
If you need some energy or inspiration I can recommend one women who may provide that- Congresswomen Nydia Velasquez. She is a fierce and energetic woman who is completely dedicated to supporting small businesses.
This week at Brooklyn Borough Hall Velasquez opened a panel discussion about the current economic stimulus package and what has been implemented to help small business in America. The panel included CFO Paul Quintero of ACCION USA.
Quintero spoke warmly about AUSA’s commitment to its communities and the importance of collaboration within the industry. Velasquez resounded with extreme vigor and honesty about the role of government in helping small businesses. She talked about the importance of supporting institutions like AUSA, before leaving to attend a similar rally in Manhattan.
After the panel spoke, there was a short discussion and later entrepreneurs from diverse industries mingled to share ideas and learn more. I watched as Glamis Haro, an AUSA loan consultant representing Brooklyn listened to the challenges, hopes, and concerns of each individual and spoke wholeheartedly to them about their options for attaining capital through ACCION USA.
As I was leaving, in walked Velasquez again! She had finished her delivery at the other small business rally and was anxious to be in the crowd talking to entrepreneurs in Brooklyn. A young woman came running to give her a warm embrace and many other entrepreneurs gathered as the congresswomen lent an open ear. Velasquez, along with AUSA, understands that by supporting small businesses you are supporting something much larger.
Check out the video to see both the commitment and dedication conveyed by Velasquez and Quintero.
ACCION USA and Nydia Velasquez from Erica Dorn on Vimeo.
Tags: accio nyc, accion, accion usa, erica dorn, microfinance, microloans, nydia velasquez, paul quintero, small business, us microfinance
The Times They Are a- (slowly) Changin’
I recently attended a meeting on the FDIC Survey of Banks’ Efforts to Serve the Unbanked and Underbanked. It was hosted by the Boston Alliance for Economic Inclusion, and was being presented by the FDIC.
Now you could ask why the FDIC isn’t surveying the unbanked and underbanked on what services they’re lacking; I’ll address that monumental job in a moment…
The fact that the FDIC is concerned about this segment of the population is good, the fact that a bit over 50% of banks surveyed actually responded, is really good. As Bob Dylan would say “The Times They Are a-Changin.”
So what did I learn at the meeting?
- Many banks offer basic financial education materials, but few participate in the types of outreach efforts that are viewed by the industry as most effective to attract unbanked and underbanked individuals as long-term customers.
- Most banks offer basic checking accounts to all customers, but few offer deposit, payment, credit, and electronically-based products that address the unique needs of these particular customers.
- Banks are concerned about the profitability of doing business with unbanked and underbanked individuals, according to the survey they cite “perceived regulatory issues related to anti-money laundering laws and regulations.”
But the good news is…
- Many are incorporating outreach and financial education into their customer service, sometimes even holding workshops right inside the bank.
- Individual Development Accounts, credit rebuilder programs and Second Chance Checking accounts are being offered on a more regular and widespread basis. Second Chance Checking accounts are important to people who have negative banking records as reported by bureaus like ChexSystems; which banks use the same way a credit card company would use Equifax.
- Some banks are even offering check cashing services to non-customers in an attempt to undercut and take business away from predatory check cashing establishments.
- Banks are incorporating bilingual employees and making their environments less casual in order to attract immigrants and other people who may feel intimidated by the traditional formal bank environment.
In 2009 the Census Bureau will be asking communities in large urban areas how well they’re being served by their neighborhood banks. Microfinance institutions like ACCION USA will be able to use the data collected to better serve communities throughout the United States. While many banks in the US are still learning how to reach out to these communities it’s good to see that they’re incorporating some of AUSA’s practices, like making financial education part of customer service, offering credit builder products, and hiring staff that speaks their language.
Like Bob said “The Times They Are a-Changin.”
A Big Win for Microfinance Awareness
A briefing for New York City Council members marked a big win for AUSA on the microfinance awareness front. As you may know from my previous blog post, a lack of public awareness has hindered microlenders from growing to scale and fully reaching the small business community.
Over lunch, catered by AUSA client-owned business Kahlua’s Café, president and CEO Gina Harman presented a compelling case to our city’s key decision-makers:
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There are over 900,000 microbusinesses within New York city limits. ACCION USA has provided just over 11,000 loans in its 16 year history. We have a long way to grow.
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Despite this, AUSA loans have the potential to solve city problems ranging from unemployment (each AUSA loan provided helps create 1.7 jobs) to childhood obesity (loans made to street vegetable vendors help bring healthy foods to low-income neighborhoods!)
AUSA client Sandra Penaranda (right) stole the show at a recent City Council briefing. Her loan consultant, Ana Maria Ruiz, translated her compelling story.
While the facts are staggering, what really got the group’s attention was a testimonial given by two-time AUSA borrower Sandra Penaranda. She originally used a loan of a few thousand dollars to get both her credit history and record sales business started. Thanks to this support, her business has grown strong enough to earn a contract with the MTA—her new store opens up in the Jackson Heights-Roosevelt Ave. train stop next week.
The support of city lawmakers will be crucial in helping AUSA to reach as many metropolitan area entrepreneurs as possible. By providing capacity for grants and no- or low-cost capital to lenders, engaging in partnerships that increase microlenders’ visibility, and encouraging lending in risky markets via loan guarantee funds, the City can do its small businesses right.
That’s what AUSA petitioned for—if you run into your City Council member on the street, it wouldn’t hurt to do the same!