WASHINGTON -- A new commission formed to encourage thrift has issued a set of novel recommendations meant to help Americans get back into the habit of saving once again.
The Commission on Thrift includes the National Federation of Community Development Credit Unions, the Institute for American Values, the Institute for Advanced Studies In Culture, the New America Foundation, Public Agenda, Demos and the Consumer Federation Of America, among others. CUNA assisted in reviewing the report and General Counsel Eric Richard addressed the audience at its release.
"Families are juggling high balances on a fistful of credit cards, raiding equity in their homes to pay for immediate needs, and putting their faith in the lottery as the only way to get ahead financially," the commission wrote in a briefing about its report, Confronting the Debt Culture.
"Teenagers and students are burdened with credit card and student debt before they start out in life. More than one out of three Americans today say they have felt their financial situation was out of control at some point, and about one in every seven families report that at some time in their lives, they experienced financial problems severe enough to have caused them to file for bankruptcy or use a credit consolidator," the briefing added.
"In recent decades, new predatory lending institutions have moved into the malls and Main Streets of America," said David Blankenhorn, wrote president of the Institute for American Values in a release about the report.
"In the private sector, they include payday lenders, some franchise tax preparers, auto title lenders, subprime credit card issues, subprime mortgage lenders and private student loan companies. 'Anti-thrift' institutions promise 'fast cash' and 'free money' at usurious interest rates and trap many Americans in a cycle of debt. The public sector has it own anti-thrift institution--the state owned and operated lottery."
The report called for the creation of a pro-thrift institutional environment that would encourage financial health, regular savings and wealth building for all Americans. It recommended, among other things, a public education campaign for thrift modeled on the campaigns to reduce smoking and drunk driving along with increased support for existing thrift institutions like credit unions and development of new initiatives that provide low-interest consumer loans and savings as alternatives to payday lenders.
It also included changing state lotteries to include a savings ticket feature, placing usury rate caps on small loans, establishing matched savings accounts for children and expanding and improving school savings programs.
The report described a two-tier approach toward savings in the U.S. Those with money (the investor class) have institutional incentives to save while those without are too often trapped in institutional traps that discourage thrift.
"The higher earning members of the investor class are not necessarily smarter or more disciplined about building wealth," the report said. "But they do have greater access to institutions and expertise that foster wealth-building discipline. They are beneficiaries of tax incentives and advantages linked to their savings and investment plans. They are courted and served by a bevy of insurance agents, tax lawyers, stockbrokers, tax accountants, deferred compensation experts and investment bankers who will help them with their financial planning" the report read.
"The lottery class, on the other hand, lacks such ready access to pro-thrift institutional disciplines. Many members of the lottery class are not working in jobs that offer benefits such as 401(k)s, profit sharing or retirement plans. (In 2004, 70 million of America's 153 million wage earners worked for employers without a retirement plan.) Nor are people in the lower half of the income distribution pursued by investment firms, tax accountants or major banks. Instead, they are targets of payday lenders, subprime mortgage brokers, credit card issuers, tax refund lenders and their friendly state lotteries."
The report drew the ire of payday lenders. The Community Financial Services Association of America, an association representing payday lenders, swiftly attacked it.
"While the intentions are good, the recommendations in the report demonstrate the complexity of small-dollar, short-term credit offerings and their costs," said, D. Lynn DeVault, CFSA president. "So-called solutions such as annual rate caps would eliminate not only payday lenders but also the model credit union alternatives described in the report as well."
The CFSA pointed out that alternatives to payday loans would also fail a 36% interest rate cap.
"The payday loan alternatives recommended in the report provide another choice for consumers, but cannot be considered a replacement for payday loans," DeVault said.
"And when you calculate the total cost of the credit union alternatives, the 36% annual interest rate cap would eliminate them as well. The authors of this report need to rethink their recommendations."