Innovations in Personal Finance for the Unbanked: Emerging Practices from the Field. Get Checking is a financial education

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1 Innovations in Personal Finance for the Unbanked: Emerging Practices from the Field ACCESS AND SECOND-CHANCE ACCOUNTS CASE STUDY A financial education program with a built-in opportunity for consumers with poor account management histories to regain access to mainstream banking is a financial education program jointly developed by efunds Corporation; Consumer Credit Counseling Services of Milwaukee; the University of Wisconsin Extension (UW-Extension), Milwaukee County; and the University of Wisconsin Milwaukee School of Continuing Education (UWMSCE). The program provides an introduction to banking and practical money management skills to those without a primary banking relationship. Of special interest to the program are unbanked consumers who have previously had bank accounts but are now denied access to banking services because of poor account management. Those who successfully complete the program can open a qualifying checking or savings account at participating financial institutions in communities where the program currently operates., a partnership of local educators, nonprofit organizations, and financial institutions, brings together a coalition of local banks, credit unions, social service agencies, and lenders. In Milwaukee, one of the cities where the first pilot was conducted, UW-Extension coordinates the program. Participants receive a six-hour course on banking basics, checking account management, credit, and budgeting skills. Classes are taught Name and Location Business Model Services Offered Constituency Served Success and Outcomes to Date, Milwaukee Access and second-chance account Financial education and starter accounts Unbanked customers, especially those who need to rebuild their credit history In Milwaukee, 1,510 participants have enrolled since 1998, and 92 percent of them have successfully completed the program. 83 percent of those who complete the program opened new accounts; 98 percent of those with new accounts have maintained them. Some of the new account holders have moved on to auto and home loans. A standardized curriculum package, developed for use by educators, is being implemented in 30 communities across the country. by faculty and staff from UW-Extension, Consumer Credit Counseling Note: Information in this table is based on the program in Milwaukee, the first pilot program. Since 2002, efunds has been working with Milwaukee and making the program curriculum available to other communities. 1

2 Services of Milwaukee, and other participating community organizations. As of December 2002, 1,389 people have completed the Milwaukee pilot program (a 92 percent completion rate), and 83 percent of those have opened new accounts. In Milwaukee, a telephone survey conducted in 2001 found that 98 percent of the accounts remained open after a year, a rate much higher than is the case for the general population. Participating banks are observing that graduates want to move rapidly to auto and home loans. The program is being implemented in stages. The pilot stage involved Milwaukee, Minneapolis, Los Angeles, and Boston. The revision stage sought input from all pilot programs. The expansion stage is ongoing, with efunds Corporation introducing the program nationwide both to financial institutions and community-based educators. Currently, the Get Checking program exists in more than 30 communities in 11 states. Foreign-language pilots are expected in is an innovative partnership that uses financial education to provide reentry into the financial mainstream for the unbanked. It offers people with past financial difficulties an opportunity to rebuild their relationship with a financial institution and get back on the path to building savings and a financial history requirements for purchasing a home, financing children s education, and building assets. The program teaches participants the skills required to responsibly manage a bank account and gives them a chance to open a new account with a participating bank or credit union. The experience in Milwaukee has shown that participants can learn basic banking skills and financial principles and that many are then ready to make the necessary changes to improve themselves financially. History efunds Corporation is a leading provider of electronic payment, risk management, and related professional services. ChexSystems is a wholly owned subsidiary of efunds. ChexSystems is a network of member banks and credit unions that regularly contribute information on mishandled checking and savings accounts to a central national database. ChexSystems provides deposit account verification services to its financial institution members to help them identify account applicants who may have a history of account mishandling (for example, people whose accounts were overdrawn and then closed by them or by their bank). Each report submitted by a member institution on an account holder remains in the centralized database for five years, unless the bank or the credit union that filed the report requests its removal or ChexSystems becomes obligated to remove 2

3 it under applicable law. ChexSystems neither approves nor declines new account openings. Those decisions are entirely up to each institution and its individual policies. UW-Extension is a unique partnership of counties, the U.S. Department of Agriculture, and the University of Wisconsin working together to help people put knowledge to work. UW-Extension uses education to help people understand and solve problems. Educational programs developed and conducted by county-based educators reflect local concerns. They apply knowledge from the University of Wisconsin, other universities, and the United States Department of Agriculture. Milwaukee County UW-Extension worked with community partners to identify the need for basic banking services and worked collaboratively to make the program available. The National Foundation for Credit Counseling (NFCC), Inc., which was founded in 1951, is a national network of more than 1,300 nonprofit community-based organizations helping more than 1.5 million households annually. NFCC members provide free or low-cost money management, debt reduction, and financial educational services. Many of them also provide counseling for consumers who want to purchase homes and for those who have fallen behind on their mortgage payments. Many of NFCC s members operate under the name Consumer Credit Counseling Service. Although some members operate under other names, all are nonprofit community-based organizations that are certified and accredited by NFCC, thereby ensuring that they adhere to its national standards for highquality credit counseling, debt reduction services, and education for financial wellness. As part of its efforts to increase basic consumer knowledge about banking, the efunds Corporation recently launched Aboutchecking.com, a Web site for checking account information and training in both English and Spanish. Because consumers must have a satisfactory credit history to enter mainstream banking, efunds Corporation, through a partnership with NFCC, launched Get Checking as a financial education service for consumers who are unbanked primarily because of past account mismanagement. is being implemented in stages. Milwaukee Partnership, the first program, was started in August 1998 by Consumer Credit Counseling Service of Milwaukee, UW-Extension, UWMSCE, Social Development Commission, and the local Community Action Program in partnership with 19 local financial institutions. In 2000, efunds Corporation approached the program to expand to other communities nationally. The efunds Corporation supported the development of a curriculum package that could be implemented by local communities across the country. efunds Corporation also supported the update of ChexSystems reporting so that participation in the Get Checking program could be added to an individual s ChexSystems report. efunds Corporation jointly markets the program with UW-Extension and UWMSCE. Business Model Program/Product Description and Outcomes is a unique program that offers people with past financial difficulties an opportunity to rebuild a relationship with a financial institution and begin building assets. The program teaches enrollees the skills they need to responsibly manage a bank account and gives them a chance to open a new account with a participating bank or credit union. The program is designed as a partnership between efunds Corporation (the national sponsor) and local consumer credit counseling agencies, other financial educators, and financial institutions. The planning for the pilot program was facilitated by UW-Extension and brought together representatives from the financial 3

4 community, community organizations, housing counseling groups, property management associations, and agencies responsible for Wisconsin s welfare reform program. Consumer Credit Counseling Services of Milwaukee agreed to conduct the first class in August 1998, and the program was piloted between August 1998 and December 2001 through a coalition of local banks, credit unions, social service agencies, and utility companies. Participants receive six hours of instruction and learn banking basics ranging from low-cost account options to how to make appropriate choices, manage checking and savings accounts, and build credit. Financial educators and institutional representatives give participants hands-on experience in working with a checking account. Those who complete the classroom sessions and pass a competency test are awarded a certificate of completion, which allows them to open a checking and/or savings account at participating institutions. The Milwaukee Partners Financial Partners Alliance Credit Union Anchor Bank Appletree Credit Union Brewery Credit Union Educators Credit Union US Bank N.A. Great Midwest Bank S.S.B. Guaranty Bank S.S.B. Guardian Credit Union Landmark Credit Union Legacy Bank Bank Mutual North Shore Bank St. Francis Bank State Financial Bank Sunset Bank TCF Bank, F.S.B. UW Credit Union Wells Fargo Bank Class Faciliators UW-Extension, Milwaukee and Waukesha counties Consumer Credit Counseling Services of Milwaukee Social Development Commission University of Wisconsin Milwaukee School of Continuing Education Corporate Sponsors Wisconsin Energy Corporation Wisconsin Credit Union League National Corporate Partner e-funds Corporation Consistent with program goals, participating institutions Communities offer program graduates less stringent Arizona California Mesa Arcata criteria for opening an Bakersfield Fresno account than is usually Los Angeles the case. At the same Oakland Sacramento time, however, many San Diego accounts do require minimum balances and Stockton San Francisco Santa Ana have restrictions on ATM Colorado Denver use for the first few Florida Melbourne months to encourage Iowa Waterloo savings. These institutions Illinois Aurora Chicago also try to be sensi- Peoria Waukegan tive to participants need Indiana Indianapolis for personalized support Kentucky Louisville and therefore partner Louisiana Baton Rouge with community-based Maine South Portland nonprofit organizations to deliver the program. Minnesota Oregon Minneapolis Medford is being Pennsylvania Philadelphia Pittsburgh implemented in stages. Rhode Island East Providence The pilot stage involved Wisconsin Beloit Milwaukee, Minneapolis Chippewa Falls (March 2000), Los Green Bay LaCrosse Angeles (April 2001), Madison and Boston (May 2001). The revision stage sought input from all pilot locations to ensure that the Menasha Milwaukee Racine Rhinelander Sheboygan Wausau program is reaching its intended audience and meeting its goals. The expansion stage is ongoing, with efunds Corporation introducing the program nationwide to both financial institutions and community-based educators. As of December 2002, 1,510 people had taken the Get Checking Milwaukee Partnership classes, and about 92 percent (1,389) had received certificates. In 2000, with support from efunds Corporation, UWMSCE developed 4

5 In a survey of program graduates, more than 90 percent of respondents indicated that their confidence in choosing and maintaining an account had improved. a standardized curriculum package for educators across the country to use. The program is being implemented in 30 communities in 11 states, including five programs in Wisconsin. Partnership has been the key to s impact and effectiveness. Collaboration with community-based nonprofit organizations enriches and strengthens the program, and the financial institutions provide participants with motivation and incentives. The program offers several benefits to financial institutions. For a small annual contribution, they get access to new checking or savings customers who will eventually need other services, such as auto and home mortgage loans. They also have the opportunity to build loyalty for providing a second chance, get community reinvestment credit, and benefit from enhanced community recognition and visibility. Products/Services and Pricing The program offers a six-hour financial education program. Participants are often referred by banks and credit unions and pay between $35 and $50 for the classes. They learn about banking basics and how to use an account properly by writing checks, working with a checkbook register, and balancing the account with the bank statement. The curriculum has three components: (1) Banking Basics (different kinds of accounts and their features, availability of funds); (2) How to Operate a Checking Account (making deposits, writing checks, noting register entries, balancing to a statement); and (3) Budgeting and Credit (keys to successful money management and an introduction to credit). Classes are usually held over two or three evenings and are taught by locally based educators who have high visibility and credibility in the community (e.g., faculty and staff from the Milwaukee County UW- Extension and the Consumer Credit Counseling Service of Milwaukee). Representatives from financial institutions are available to answer questions and provide assistance. Consumer Segment Served The program is available to anyone who has been denied a checking account because of a history of account closure. Recently, the program took a more proactive approach by introducing the curriculum to high schools in San Diego. A study of a pilot project in Milwaukee indicated that about 75 percent of the respondents were black women, and nearly half were between the ages of 25 and 35, earning $28,000 to $46,000 annually. Technology According to Patrick Vandenberg, program manager for Consumer Credit Counseling Services of Milwaukee, It is great to teach these classes. You can see the light bulb go on as participants start to realize what they can accomplish with the knowledge they gain in the classes. It is clear that many participants did not have the experience or the knowledge of banking practices before. UW-Extension and UWMSCE have developed a database that is part of the curriculum package offered to communities implementing. It includes standardized computer reports to generate letters responding to inquiries, class rosters, and sign-in sheets. This database can also be used to track student participation and completion rates. efunds has now added a flag to ChexSystems reports of program graduates to show completions. 5

6 Locations and Hours Classes are usually held over two or three evenings or on Saturdays at a community location and are taught by local educators who have high visibility and credibility in the target communities (e.g., faculty and staff from the Milwaukee County UW-Extension and the Consumer Credit Counseling Service of Milwaukee). Representatives from financial institutions are available to answer questions and provide assistance to participants. Education/Outreach/Marketing uses two levels of marketing. First, local programs (such as the Milwaukee program) market the program through participating financial institutions, community partners, and other financial literacy initiatives, such as earned income tax credit outreach. When participating institutions cannot open an account for a potential customer, they refer the person to Get Checking. Each community develops its own network of referrals and marketing strategy. The second level of marketing involves the national outreach. The national partnership of efunds Corporation, UW- Extension, and UWMSCE markets the program to educators and financial institutions. NFCC serves as a resource in this marketing effort. In addition, UW-Extension is in the final stages of developing a Web site that consumers and potential educators or financial institutions can access. The efunds Web site also carries information about. Bottom Line Financial Costs and Profitability The fees paid by the participants cover the cost of instruction in. Participating banks typically make a small contribution to help with start-up program costs. Some institutions have set up internal tracking systems for account management and profitability analysis. The program s national corporate partner, efunds, provided initial funding for the development of the course modules but has no ongoing funding commitments. Major findings is an innovative partnership with great potential for bringing new customers into financial institutions. Participants learn about account options and management during six hours of classes. operators cite three key factors that contribute to the program s success: Both the consumer and the financial institution benefit. offers consumers a second chance to build their credit histories and reenter mainstream banking, both prerequisites to Financial success, homeownership, and asset building. financial institutions get the opportunity to reach new customers, to develop banking relationships, and to be there when these customers need a home loan or other financial services. Community collaboration is essential to program success. The experience highlights the importance of concerted, collaborative efforts among financial educators, community-based organizations, and financial depositories in working with the unbanked. Banks and credit unions have the customer contacts and know which ones to refer to the program. Local community educators provide an objective presentation of the material. Bringing community-based organizations together with the financial community to deliver the program helps provide the support these customers need. 6

7 ACCESS AND SECOND CHANCE ACCOUNTS Financial education is key to linking unbanked consumers to mainstream banking. The program demonstrates that a well-prepared course on basic financial skills can help unbanked individuals rehabilitate their credit histories and reestablish a relationship with mainstream financial institutions. offers a fresh start for people who have had problems with the banking system in the past or were reported to ChexSystems. It gives these customers a chance to establish a banking relationship as a first step toward improving their credit records so they can begin building and accumulating assets. UW Extension Kim Terry Housing & Financial Management Educator Milwaukee County 932 S. 60th Street Milwaukee, WI kim.terry@ces.uwex.edu efunds Melanie Trausch Marketing Project Coordinator 8501 North Scottsdale Road Suite 300 Scottsdale, AZ melanie_l_trausch@efunds.com One of a series of case studies on personal financial services in distressed communities. Compiled by the Fannie Mae Foundation. The opinions expressed in these case studies are those of the financial organizations featured, and do not necessarily represent the views of Fannie Mae Foundation or its officers or directors Fannie Mae Foundation. All Rights Reserved. 7

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