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The Benefits of Local Financial Empowerment Initiatives

The Benefits of Local Financial Empowerment Initiatives

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Joe Valenti, Director of Asset Building, testifies before the New York City Council Consumer Affairs Committee.
Joe Valenti, Director of Asset Building, testifies before the New York City Council Consumer Affairs Committee.

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Published by: Center for American Progress on Feb 27, 2014
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1 Center for American Progress |  The Benefits of Local Financial Empowerment Initiatives
 Testimony on “The Benefits of Local Financial Empowerment Initiatives”
New York City Council Consumer Affairs Committee Hearing on “Office of Financial Empowerment: Accomplishments, Programming, and Strategy Going Forward”
By Joe Valenti February 27, 2014
Te Cener or American Progress appreciaes he opporuniy o submi esimony o he New York Ciy Council Commitee on Consumer Affairs or is oversigh hearing on he Office o Financial Empowermen.Te Cener or American Progress, or CAP, is a progressive, nonparisan hink ank dedicaed o improving he lives o Americans hrough ideas and acion. As par o is developmen o policies o reduce povery and ensure a sable middle class, CAP con-siders public issues ha concern he financial well-being o low- and moderae-income households and promoes a financial sysem ha works or all Americans.Te financial sysem has changed dramaically in he years since he Office o Financial Empowermen launched in 2006. Nearly 2,000 bank branches have closed naionwide since he end o 2008, and a Bloomberg analysis esimaes ha 93 percen o hem were in zip codes wih household incomes below he U.S. median o approximaely $53,000.
 echnology has ushered in changes in how many Americans can access financial services. Insead o deposiing a check a he bank or going o a check casher, many consumers can now deposi checks using a smarphone. In some pars o he counry, more aduls have cell phones han bank accouns.
 And while prepaid cards were largely unheard o as a financial produc a decade ago, millions o Americans now use hem o manage money. In New York sae, hese cards are also used o disribue unemploymen  benefis and ax reunds.
2 Center for American Progress |  The Benefits of Local Financial Empowerment Initiatives
 While consumers ofen find i difficul o make ends mee, he sakes are also very high  when hey have difficuly managing heir money. According o he U.S. Consumer Financial Proecion Bureau, he average consumer who overdraws a bank accoun uli-maely pays $225 in overdraf or insufficien-unds ees over he course o one year.
 I is esimaed ha wo-hirds o all payday-loan borrowers ake ou more han seven loans in one year.
 I is no surprising ha amilies wihou savings are also much more likely o ace hardships, such as ood insecuriy, orgone docor visis, missed ren paymens, and shu-off uiliies, compared o hose wih even a small amoun o savings, according o a 2010 Urban Insiue analysis.
New York Ciy is well poised o deal wih many o hese broader changes in he financial markeplace because avorable consumer proecions exis a boh he sae and ciy levels. Te sae o New York bans he high-cos payday and auo-ile loans ha plague low-income consumers in oher pars o he counry.
 Te sae limis check-cashing ees a 1.95 percen, whereas many oher saes have a 3 percen o 5 percen cap. And he sae also requires banks o offer basic accouns wih a monhly ee no exceeding $3.
  A low-income worker could easily spend 10 imes ha amoun each monh in check-cashing and money-order ees. And he New York Ciy Deparmen o Consumer Affairs regulaes many oher ypes o consumer finance businesses such as pawnbrokers and used auo dealers hrough is licensing auhoriy. Ye avorable sae and local laws are only par o he soluion. CAP applauds he New  York Ciy Office o Financial Empowermen, or OFE, or being a naional leader in proecing low-income consumers in he financial markeplace. As we noed in a repor released in Ocober 2013, local governmens can and should do more o build financial securiy or heir residens. Agencies such as OFE can coordinae wih financial insiu-ions on a neighborhood basis, hereby building rus wih residens in communiies ha have ofen been underserved.
 Wih nearly 1 million New York Ciy residens lacking bank accouns, he effors o he OFE have he poenial o pu millions o dollars back in he hands o residens󲀔dollars ha can hen be saved or spen in he local economy.
 Agencies can also offer one-on-one suppor wih residens’ financial challenges as New York Ciy does wih is sysem o Financial Empowermen Ceners. Tese ceners have served 25,000 cliens, reduced heir deb levels by $14.7 million, and helped ciy residens save $2.4 million.
Te benefis o he OFE also spill over ino oher governmen uncions across he ciy. Having in-house experise wih he consumer financial needs and challenges o low-income residens can make oher ciy programs work more effecively. Among oher parnerships, OFE has worked o provide ree checking accouns o employees o ciy agencies and some nonciy employers and incorporaed financial counseling ino evic-ion prevenion and workorce developmen programs by he ciy’s Human Resources  Adminisraion and repaymen programs by he New York Ciy Housing Auhoriy or residens who are behind on ren.
 Tese effors expand access o affordable financial services and encourage beter financial managemen wih he poenial o reduce long-erm reliance on public benefis.
3 Center for American Progress |  The Benefits of Local Financial Empowerment Initiatives
New York Ciy’s OFE also helps ederal programs work beter. Trough he earned income ax credi campaign, i has raised awareness o and improved access o ree or low-cos ax preparaion services ha have delivered $1 billion in ax reunds over he pas 11 years.
 Residens have accessed hese reunds wihou spending money on high-cos ax preparaion or “reund anicipaion” ees, which erode he value o saey ne programs.
 And he SaveNYC demonsraion projec, which offers o mach savings deposis by low-income ax filers, helped build he case or maching savings incenives as par o a broader ax reorm effor.
Locally grown iniiaives such as New York’s Office o Financial Empowermen help residens access beter banking services, learn how o ake conrol o heir finances, and avoid he many hazards ha make i difficul o ge ou o deb and save or he uure. Tey also help ederal policymakers and regulaors who seek o address an increasingly complicaed and challenging financial markeplace by acing as innovaors and demon-sraing bes pracices ha can be replicaed naionwide.

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