HomeMy Public PortalAbout14-8787 Waive Bidding Process in order to address Emergency Expense for City Employees/BMG Sponsored by: Commissioner Holmes
RESOLUTION NO. 14-8787
A RESOLUTION OF THE CITY COMMISSION OF THE
CITY OF OPA LOCKA, FLORIDA, DIRECTING AND
AUTHORIZING THE CITY MANAGER TO WAIVE THE
COMPETITIVE BIDDING PROCESS, IN ORDER TO
ADDRESS EMERGENCY EXPENSES FOR CITY
EMPLOYEES, AND NEGOTIATE, ENTER INTO AND
EXECUTE A CONTRACT WITH BMG, MONEY TO
PROVIDE AN "EMERGENCY LOAN PROGRAM" TO
CITY EMPLOYEES, AT NO COST TO THE CITY;
PROVIDING FOR INCORPORATION OF RECITALS;
PROVIDING FOR AN EFFECTIVE DATE
WHEREAS, the City Commission of the City of Opa-locka desires to assist the
City employees in acquiring emergency loans through a voluntary employee benefit
"Emergency Loan Program"; and
WHEREAS, to make the program available to be utilized by the City employees
as soon as possible, it is impracticable to utilize normal competitive bidding procedures;
and
WHEREAS, the City Manager has determined in writing, under oath, that
pursuant to Section 2-320 of the City Code, that the failure to secure the necessary loan
service program, on an expedited basis, could result in substantial loss to the City; and
WHEREAS, the option will be a direct-to consumer loan program, for employees
who do not have access to traditional credit options, (e.g., banks, credit union credit
cards, etc.); and
WHEREAS, the program will not cause a financial impact to the City, and the
City Commission of the City of Opa-locka agrees to waive normal competitive bidding
Resolution No. 14-8787
procedures and authorize the City Manager to negotiate, enter into and execute an
agreement for an "Emergency Loan Program"with BMG Money.
NOW, THEREFORE, BE IT DULY RESOLVED BY THE CITY
COMMISSION OF THE CITY OF OPA LOCKA, FLORIDA:
Section 1. The recitals to the preamble are hereby incorporated by reference.
Section 2. The City Commission of the City of Opa-locka, Florida, hereby
waives the competitive bidding process, in order to address emergency expenses for City
employees, and authorizes the City Manager to negotiate, enter into and execute a
contract with BMG Money, to provide an "Emergency Loan Program" to City
employees, at no cost to the City.
Section 3. This resolution shall take effect immediately upon adoption.
PASSED AND ADOPTED this 11th day of pril, 2014. -'--'
YRA T LOR
MOteYOR
• ttest to: Approved as to form and legal sufficiency
,�.! ..�1. _► • I a 1 i ! N r
i.anna Flores Josr.h*.. 'le er
City Clerk G'EEN .POON MARDER PA
C'/y Attorney
Moved by: COMMISSIONER SANTIAGO
Seconded by: COMMISSIONER JOHNSON
Commission Vote: 5-0
Commissioner Holmes: YES
Commissioner Johnson: YES
Commissioner Santiago: YES
Vice-Mayor Kelley: YES
Mayor Taylor: YES
2
RECEIVED Qp.Lock
CITY CLERK
10
2014 APR -8 PM 3: 23
2 �2
City of Opa-Locka
Agenda Cover Memo
Commission Meeting 04/09/2014 Item Type: Resolution Ordinance Other
Date: X
(EnterX in box)
Fiscal Impact: Ordinance Reading: 1st Reading 2nd Reading
(Enter X in box) Yes No (Enter X in box)
X Public Hearing: Yes No Yes No
(EnterX in box) X X
Funding Source: (Enter Fund&Dept) Advertising Requirement: Yes No
(EnterX in box) X
ITEM BUDGETED:
YES
NO X
Contract/P.O.Required: Yes No RFP/RFQ/Bid#:
(Enter X in box) X N/A
Strategic Plan Related Yes No Strategic Plan Priority Area: Strategic Plan Obj./Strategy: (list the
(Enter X in box) X specific objective/strategy this item will address)
Enhance Organizational iok
Bus.&Economic Dev ; Enhance organizational morale and
Public Safety allow employees economic
Quality of Education p development to pay for out-of-
Qual.of Life&City Image p pocket health costs.
Communcation
Sponsor Name Commissioner Department: City Manager
Timothy Holmes
Short Title:
A resolution of the City of Opa-locka, Florida approving the City Manager to enter into and execute an
agreement for a new voluntary employee benefit, "Employee Emergency Loan Program" with BMG
Money, Inc.. This is a direct-to-consumer loan program. Therefore, there will be no financial impact
Staff Summary:
The City of Opa-locka currently has no option for City employees who may need an emergency loan that
can be paid off through payroll deductions. This voluntary employee benefit "Employee Emergency
Loan Program" option is a direct-to-consumer loan program; designed for employees who may not have
access to traditional credit options, such as banks, credit unions, credit cards, deferred compensation
and/.or retirement accounts. There are currently 18 local governent agencies and six not-for-profit
agencies utilizing the loans at work program.
Agenda Cover—Commission Meeting 04/09/2014
Page 2
Proposed Action:
Staff recommends approval.
Attachment:
• Copy of the City's Resolution No. 14-8778
• Copy of the Non-Exclusive Payroll Deduction Plan Agreement
• Copy of the LoansAtWork Program Employer Clients
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MEMORANDUM
TO: Myra L. Taylor Mayor
Joseph L. Kelley Vice Mayor
Timothy Holmes Co' missio e
Dorothy Johnson Co missio• •r
Luis B.Santiago Com iss'•n
FROM: Kelvin L.Baker, Sr., City Mana
DATE: April 9,2014
RE: A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF OPA-LOCKA,
FLORIDA, AUTHORIZING THE CITY MANAGER TO ENTER INTO AND EXECUTE
AN AGREEMENT WITH BMG MONEY INC., FOR A NEW VOLUNTARY
"EMPLOYEE EMERGENCY LOAN PROGRAM".
Request: A Resolution of the City Comission of the City of Opa-locka, Florida, Approving the City
Manager to enter into and execute an agreement with BMG Money, Inc. for a new voluntary
employee benefit, "Employee Emergency Loan Program" option.
Background:
The City of Opa-locka currently has no option for City employees who may need an emergency loan that can be
paid off through payroll deductions. This voluntary employee benefit "Employee Emergency Loan Program"
option is a direct-to-consumer loan program; designed for employees who may not have access to traditional
credit options, such as banks, credit unions, credit cards, deferred compensation and/.or retirement accounts.
There are currently 18 local governent agencies and six not-for-profit agencies utilizing the loans at work
program.
Description:
Compliance Guide/Policies and Procedures. Pursuant to Resolution No. 14-8778, a Non-Exclusive Payroll
Deduction Plan Agreement with BMG Money, Inc. is pending approval and shall be construed in accordance
with the internal laws of the State of Florida (without regard to conflicts of the law principles providing for the
application of the laws of another jurisdiction).
Financial Impact:
This is a direct-to-consumer loan. Therefore, there will be no financial impact.
Implementation Time Line:
Immediately.
MEMORANDUM—Commission Meeting April 9, 2014
Page Two
Legislative History: Resolution#14-8778
Staff Recommendation: Staff recommends approval of the attached resolution.
Attachment(s):
1) BMG Money, Inc. LoansAtWork Program Employer Clients
2) Non-Exclusive Payroll Deduction Plan Agreement
3) Copy of Resolution#14-8778
Prepared By:
T. C. Adderly, Human Resources Director
Susan Gooding-Liburd, CPA, Finance Director
Sponsored by: Commissioner Holmes
RESOLUTION NO. 14-8778
A RESOLUTION OF THE CITY COMMISSION OF THE CITY
OF OPA LOCKA, FLORIDA, AUTHORIZING AND
DIRECTING THE CITY MANAGER TO CREATE A LOAN
PROGRAM TO ASSIST CITY EMPLOYEES IN FINANCIAL
NEED WITH OUT-OF-POCKET HEALTH INSURANCE
DEDUCTIBLE COSTS; PROVIDING FOR INCORPORATION
OF RECITALS; PROVIDING FOR AN EFFECTIVE DATE
WHEREAS, some City employees are experiencing difficulty with high out-of-
pocket health insurance deductible costs; and
WHEREAS, the City Commission of the City of Opa-locka desires to provide
assistance on a loan basis to employees in financial need, who are having difficulties with
high out-of-pocket health insurance deductible costs.
NOW, THEREFORE, BE IT DULY RESOLVED BY THE CITY
COMMISSION OF THE CITY OF OPA LOCKA, FLORIDA:
Section 1. The recitals to the preamble are hereby incorporated by reference.
Section 2. The City Commission of the City of Opa-locka, Florida, hereby
authorizes and directs the City Manager to create loan a program to assist City employees
in financial need with high out-of-pocket health insurance deductible costs, subject to
final approval of the program by the City Commission.
Section 3. This resolution shall take effect immediately upon adoption.
PASSED AND ADOPTED this 26th day of March, 2014.
Resolution No. 14-8778
7/
M ' A TAYL( '
MA ! •
Attest to:
Joa a Flores
Cit Clerk
Approved as to f rm and legalsuffi.ie y:
F 9€
! t, yy1 'fi `T J tlA f
Josp e`
GREENS1iOON MARDER PA
City Attorney
Moved by: COMMISSIONER HOLMES
Seconded by: COMMISSIONER JOHNSON
Commission Vote: 5-0
Commissioner Holmes: YES
Commissioner Johnson: YES
Commissioner Santiago: YES
Vice-Mayor Kelley: YES
Mayor Taylor: YES
2
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loansAtWork® Program Employer Clients
Government
1. City of Doral
2. City of Fort Lauderdale
3. City of Hialeah
4. City of Hialeah Gardens
5. Highlands County Tax Collector
6. Jackson Health System
7. City of Lauderdale Lakes
8. City of Miami Beach
9. City of Miami Springs
10. City of North Miami
11. City of North Miami Beach
12. Palm Beach County Clerk&Comptroller
13. Palm Beach County Tax Collector
14. City of South Miami
15.Town of Surfside
16. City of Sweetwater
17. Tampa Port Authority
18. City of West Miami
Not-for-Profit
1. Community Partnership for Children(Daytona Beach)
2. Family Support Services of North Florida (Jacksonville)
3. Miami Jewish Health Systems
4. OurKids of Miami-Dade/Monroe
5. Switchboard of Miami
6. United Way of Miami-Dade
BMG Money,Inc.
1221 Brickell Ave,Suite 1170 Miami,FL 33131 Tel 305 428 2580 Fax 305 393 8814
www.bmgmoney.com
NON-EXCLUSIVE PAYROLL DEDUCTION PLAN AGREEMENT
THIS NON-EXCLUSIVE PAYROLL DEDUCTION PLAN AGREEMENT (this
"Agreement") is entered into on , 2014 by and between the City of Opa-Locka, Florida
(the"Employer"),and BMG Money, Inc., a Delaware corporation ("BMG Money"). Employer desires to
offer as a benefit to its employees BMG Money's LoansAtWork program and BMG Money desires to
loan money to such employees, in each case to be evidenced by a promissory note with the applicable
employee(collectively,as amended or otherwise modified from time to time,the"Notes").
Employer Acknowledgment. Employer acknowledges and agrees that it will comply
with its employees' requests set forth in the Notes to(a)deduct from their wages, salary, commissions or
other similar compensation (collectively, "wages") the amounts to be so deducted as described in the
respective Notes and (b) remit such amounts to BMG Money, in each case, solely to the extent of the
maximum available wages of the applicable employee and in accordance with applicable laws, rules,
regulations and orders(the"Program").
Payment Instructions. Employer agrees to remit available funds to deposit account
number 3850-1257-9286 located at Bank of America N.A., wire routing number 026009593 (or such
other account as BMG Money may from time to time specify in writing) all amounts deducted from
employees' wages in accordance with the applicable Notes on, or as promptly as practicable after, the
date the applicable wages are payable.
Marketing. Employer agrees to provide BMG Money with opportunities to market the
. Program to eligible employees and to educate such employees about the Program. Subject to applicable
law and Employer's discretion, marketing opportunities may include, without limitation, in person
meetings with employees, direct mail to employees, bulletin board postings, information made available
through the Internet and entails to employees. Employer hereby authorizes BMG Money to disclose
Employer's participation in the Program in any marketing materials prepared by or on behalf of BMG
Money. Under no circumstances shall BMG Money state, indicate, imply or lead the employee to
reasonably infer an official relationship between it and Employer or that the loan is being made directly
by Employer.
Notice. Employer shall notify BMG Money as soon as reasonably practicable if any
employee requests revocation of his or her payroll deduction request,ceases to be employed by Employer
or changes his or her employment status.
Further Assurances. Each party shall execute and deliver, or cause to be executed and
delivered,such additional instruments or documents and take all such actions as the other may reasonably
request for the purposes of implementing or effectuating the provisions of this Agreement. Employer also
agrees to provide BMG Money with access to all records (or copies thereof) necessary for BMG Money
to implement or effectuate the provisions of this Agreement and/or the Program. BMG Money will
reimburse Employer for any of its direct, out-of-pocket costs in connection with bank wire or electronic
fund transfer costs and payroll deduction processor charges associated with the Program(if any).
Public Records. Employer may be subject to Chapter 119 of the Florida Statutes,
otherwise known as the Public Records Act. This Agreement and all other documents and agreements
flowing therefrom, including those executed by any employee, are subject to disclosure to the extent
required by such Chapter 119.
Indemnification. BMG Money agrees to indemnify Employer against, and hold it
harmless from,any and all losses, liabilities,claims,costs,expenses and damages of any nature(including
but not limited to attorneys' fees) in any way arising out of any breach of its obligations under this
Agreement. Notwithstanding the foregoing, BMG Money shall not be liable to Employer for any special,
indirect,exemplary or consequential damages. The indemnification obligation under this paragraph shall
survive termination of this Agreement. Employer does not guarantee BMG Money against any risk of
credit losses and has no obligations other than as expressly set forth herein.
Assignment. BMG Money and its assignees may assign all or any of BMG Money's
rights, but none of its obligations, under this Agreement in connection with any financing of Notes or of
the loans evidenced by such Notes or otherwise,provided,however,that Employer shall,notwithstanding
any such assignment, be entitled to deal solely and directly with BMG Money in connection with
Employer's rights and obligations under this Agreement. This Agreement shall be binding upon the
parties hereto and their respective successors and assigns. Notwithstanding any such assignment,
Employer's obligations, rights and responsibilities shall be governed exclusively by this Agreement.
Termination. Employer and BMG Money may terminate this Agreement upon 60 days
prior written notice to the non-terminating party, at the address shown below. Notwithstanding any
termination of this Agreement, this Agreement shall survive as to any Notes outstanding as of such
termination until final payment in full of such Notes.
Miscellaneous. This Agreement supersedes any prior agreements with respect to the
subject matter hereof and may only be amended or otherwise modified by a writing signed by both
parties. If any provision of this Agreement is found to be unenforceable, this will not affect the validity
or enforceability of any other provision. Any provision of this Agreement that conflicts with any
mandatory provision of applicable law shall he deemed to be amended to conform with such applicable
law. Time is of the essence under this Agreement.
Waiver of Trial by Jury. Each party, as a crucial and material inducement to the other
to execute this Agreement, hereby on behalf of itself, its agents, successors and/or assigns waives trial by
jury of any and all matters triable by right arising from,through or as a result of this Agreement.
Governing Law. THIS AGREEMENT SHALL BE CONSTRUED iN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF FLORIDA (WITHOUT REGARD TO
CONFLICTS OF LAW PRINCIPLES PROVIDING FOR THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION).
BMG MONEY,INC. CITY OF OPA-LOCKA,FLORIDA
By: By:
Thomas C. McCormick Name:
Chief Operating Officer Title:
1221 Brickell Avenue,Suite 1170 3400 N.W. 135'1' Street, Building B
Miami, FL 33131 Opa-Locka, FL 33054
SWORN STATEMENT
STATEMENT in support of waiving the competitive bidding procedures for selection of a
LOAN PROGRAM to assist with emergency medical loans for City employees
STATE OF FLORIDA )
)
COUNTY OF MIAMI-DADE )
Before me the undersigned authority, this day personally appeared Kelvin L. Baker, Sr.,
who, being by me first duly sworn, deposes and says:
1. I am the City Manager for the City of Opa-locka.
2. The city is engaged in negotiations related to emergency medical loans for City
employees.
3. Emergency medical loan services needs to be provided to the City employees, in an
expedient manner.
4. Pursuant to Section 2-320(i) of the City Code, I hereby certify that it is my opinion that
normal competitive bidding procedures need to be waived in the selection of a
professional loan servicer, in order to select them on an expedited basis, or else a
substantial loss for the City may result.
FURTHER AFFIANT SAYETH NAUGHT I♦Alt
K r . : • ER, SR.
City .nager
City of•pa-locka
SWORN TO AND SUBSCRIBED before me this i1441 day of April, 2014, by Affiant
who took an oath and is personally known to me or produced as
identification.
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�'` i��^ "°t'ry P�w�stag of Florida NO ARY PUBLIC STATE OF FLORIDA
Joanna Flores+y i MY Commission EE055762 (Notary Seal)
of r° Expires 01/17/2015
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LOANS
LoansAtWork helps your
AT employees responsibly
WORK
^ X emergency exoenses .
FIXED T" PAYMENTS
Payments are deducted from the Employers pay nothing to make
employee's payroll, not to exceed 20% LoansAtWork available to their
of their take-home pay. employees.
EMPLOYMENT-BASED ELIILI LIABILITY TO EMPLOYERS
Loans are approved based on Employers verify employment and
employment status with no credit make payroll deductions — it's that
checks, allowing access to credit for simple. If an employee leaves for any
those that need it the most. reason, the employer has no liability or
risk.
BUILDS I
On-time payments are reported to
consumer reporting agencies.
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43 years
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$45.395 salary
7 years at job
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29% Administrative & Operations
14% Police Officer
14% Manager
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9% Maintenance
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4% HR & Payroll
insaga kAi in r'8 "a°f`eAi r " f-nrn 800-316 ,850'7
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/LoANs A Bett/ LOANS A Better Way
WORK Unexpected Expenses
-i;o $500-$5,000 loan
1/3 of your workers will 6-24 month payment term
not even qualify for
most mainstream : 24.61% average interest rate
financial products
• Payments under 20% of take-home
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gap — providing your
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better way to get short-
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COMPARE OPTIONS FOR A 6-MONTH $500 LOAN
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INTEREST
PAYDAY LOANS $715* YES :` $0
CREDIT CARDS $88 M $467
COMPOUNDED
EMERGENCY $180* „ „ $0
LOANS
CREDIT UNIONS $20 $0
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A HELPING HAND TO EMPLOYEES IN NEED. . .
sly f AWN ItOU EHOLD BUDGETS
Today, too many Floridians, including many THE CASE AGAINST PAYDAY LOANS
with stable government jobs, struggle financially.
U.S. households face constant economic The entire payday loan industry, among the
uncertainty to meet their financial obligations worst of the predatory lenders, thrives on the
paycheck-to-paycheck while under the risk of an financial vulnerability of workers. Payday lenders
unexpected occurrence throwing their carefully offer short-term loans with absurdly high interest
balanced budgets into disarray. Something rates of nearly 300 percent and repayment terms
as simple as a broken-down vehicle, a trip to that make the loans exceedingly burdensome
the emergency room or any number of other on borrowers.
unanticipated expenses can cause great
financial distress. In fact, according to a National Don't look for that to change any time
Foundation of Credit Counseling survey, nearly soon. The payday loan industry, particularly in
two-thirds of American households have under strongholds like Florida, is well represented and
$1,000 in savings and many do not have access is engaged in huge growth. Amongst people with
to traditional sources of credit. This has left less-than-optimal credit who need money—
working families without responsible options to a large market—payday lenders are largely
deal with the unexpected twists life may throw unchecked.
at them.
LOANS
For many Americans, a financial hit can lead AT
to a household economic crisis that can be \, WORK ,{
emotionally draining and represent lost time at
work, a significant distraction, or worse, the loss of AVERAGE AGE: 45
a job. As households struggle to make ends meet
in these economically-challenging times, many
employers would like to help but are themselves AVERAGE SALARY: $42,000
limited in what assistance they can provide to
their most valuable asset: their workforce.
AVERAGE TIME ON THE JOB: 12 YEARS•
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too many Americans are left with little option
except for predatory payday lenders, which can
exacerbate their already tenuous household
budgets. That is why BMG Money offers
LoansAtWork —a simple, responsible and
low-cost way to provide your workforce with
access to emergency loans.
These high cost loans have exploded BMG Money works with government
in recent years. Today, nearly one in four and non-profit employers to make sure
Americans have used so-called "alternative people with solid jobs and reliable income
credit providers"; these exorbitant loans point can get the money they need to keep their
to an alarming trend that underscores a lack households on track. BMG's LoansAtWork
of viable and responsible borrowing options provides loans ranging from $500 to $5,000,
for even well-employed Floridians. usually approved and funded within two
business days.
The problem with these loans is the
unending, destructive cycle they perpetuate.
With such terribly high costs and lightning-
fast due dates, these loans create pervasive COUNTY AGENCY...
"churning" that requires borrowers to come .w.
back and back again, turning them into As an el d official, I have seen too
undying "zombie" debt that only grows and any families in my community, including
never dies. These loans, with effective T ny'single moms in the agency I oversee,
interest rates more than 10 times higher than ; rn to predatory payday lenders to
LoansAtWork, create, according to report by sorrow-money to help them through an
Responsible Lending vial difficulty.
the Center for Res
p g "a debt �$
treadmill that makes struggling families worse
off than they were before they received anting to do something, and against
k
a payday loan." e objections of many on my staff who
id it wasn't `our problem,' I was so
'lad to find a workplace benefit that could
EMPLOYERS LENDING A HAND TO -Ip. LoansAtWork provides a great
EMPLOYEES -rvice to my employees at no cost to our
xpayers. A definite win-win...
Fortunately, there is an innovative option
that offers Florida's workers and employers
an affordable solution.
LoansAtWork is a simple, responsible way LOANS
to borrow money for those with a financial AT
emergency who cannot borrow funds WORK rn
e sew ere at a reasons e cost. :M Money
has built its business on one simple principle:
good people with good jobs should not be
taken advantage of b
g by payday lenders.
LoansAtWork is a basic installment loan program that
is paid back through a payroll deduction, similar to other
voluntary workplace benefits. This method of payback
mitigates the risk for BMG, allowing LoansAtWork to offer
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substantially lower costs compared to alternative
financing options.
wed to a ►
4pensive new alternator.
If not for LoansAtWork, there was no way for me
quickly access the cash I needed to "t,
While many employee benefits come at great cost for
government agencies, LoansAtWork is a purely voluntary
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PROTECTION AGAINST BAD LUCK
As the cost of living continues rising, salaries of
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healthcare and utilities and you get an atmosphere where
many families are just one stroke of bad luck away from
disaster. With LoansAtWork, employers can offer
a valuable workplace benefit that provides peace of mind
at no cost to them. While not every employee will need "�: �.
this option, the ones who do will thank their employers for ' ' " ;*
making it available.
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HOW DOES IT WORK? LoansAtWork works for employers and
employees.
LoansAtWork partners with employers
to offer low-cost alternative finance solutions There are myriad reasons and scenarios
to employees, at no cost to employers and where your employees might need a financial
low cost to employees. These employees can hand. What will you do when they need help?
take advantage of the program whenever they How will you secure your most valuable
like, privately, and can use the plan's flexible resource?
terms to pay back what they owe via payroll ,a
deductions. Loans are bottom line affordable, LOANS
AT
and payments are capped based upon the WORK
employee's net take-home paycheck. Director,
:ride myself on being fiscally
With an average interest rate of 24.61 percent, y g y
LoansAtWork are 10-times less expensive than ..,,, responsible. When I heard that
payday loans. ;our City was considering LoansAtWork, I was
skeptical that anyone working for us would
Basically, LoansAtWork allows virtually
need to access cash in this manner.
ALL employees to borrow cash in times of
My perspective changed one day when
emergency or need, at a lower cost than a unexpectedly ran into a bit of bad luck that
credit card cash advance for people with the strained my savings and available credit.
very best credit.
: s l:searched for options, l
Borrowers get added benefit to their credit
g � �_ �t '�rrk to be a convenient and*fa�rly-
history as they pay back their loans, because option and ended up using it myself.
BMG Money reports to credit bureaus. elder me a believer.
This helps borrowers improve their
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financing models.
=fit change, I needed to
LoansAtWork couldn't be easier for 4ye out of our old apartment, but my new
employers. It requires almost no work to start,
landtord wanted first month, last month and
the administrative burden is minimal and the lt, all up front. Normally, it may not
have been a problem, but l had just used up
employer assumes no risk or cost. edical bill.
LoansAtWork are scheduled on a fixed term �: < •ve
of-6-months to -years, meaning t at orrowers s
have a clear path to paying back their debts � ,: �
and the time to do so in a way that actually fits
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simply available when they need it. AND LOANSATWORK, VISIT
WWW.LOANSATWORK.COM OR CALL 800-316-8507
D ,
Thank you for your interest in our new voluntary employee benefit program from BMG
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Everyone can agree that consumers who have access to traditional, long term, secured and
unsecured credit options should use them as their first choice for borrowing. The FDIC supports this
and so do we at BMG Money. Outside of alternatives such as credit unions, home equity loans and
credit cards, the options for consumers to gain access to credit greatly diminishes. One does not
have to look far to see the impact of the current U.S. financial crisis. Productivity of employees is
being pushed with hours and overtime being cut. We are seeing sweeping regulatory reforms
affecting all lenders, credit card issuers, mortgage lenders and the formation of the Federal
Consumer Finance Protection Act and Bureau (CFPA and CFPB). The result has been a decrease
of available credit to small business and individuals alike. A decrease in home values across the
U.S. has all but eliminated the home equity loan market, further limiting credit options available to all
Americans.
We at BMG Money believe there is a better way; we have a truly revolutionary micro finance
program for employees called LoansAtWork. The program is simple to administer with no liability to
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finances and pay off their debts. At the same time they will build credit, develop financial discipline
and better manage their financial problems, making them a more secure, happier and productive
workforce.
Please find the enclosed media kit that includes an Employer Information Brochure, a spiral bound
program presentation and introductory video as well as several related articles and a summary of
the FDIC Survey on Underbanked Households. For more information please contact us directly or
-visit us at www bmrgmnnPy mnm
BMG Money Inc.
1221 Brickell Ave,Suite 1170 Miami, FL 33131 USA Phone:+ 1 305 428 2580 Fax:+ 1 305 393 8814
www.bmgmoney.com
Payday Loans Still a Deliberate Debt Trap Page 1 of 2
LOANs
26 SEPTEMBER 2013 - WRITTEN BY CHARLENE CROWELL
PAYDAY LOANS STILL A DELIBERATE
DEBT TRAP
Payday loans -the small loans that come with big fees and
triple-digit annual interest rates- pose serious threats to the
financial well-being of borrowers. That was the conclusion
reached by the Center for Responsible Lending (CRL).
,"Whether they receive the loans online, in storefronts or.r ,, `through banks, the vast majority of borrowers cannot, both
F'' s . r":4 repay the loan and cover all their basic living expenses until
F,, � t their next payday,"states the report. "Payday loans create a
f debt treadmill that makes struggling families worse off than
they were before they received a payday loan."
' The newest chapters of CRL's research series,The State of
Lending in America, covering payday loans find these products
continue to create a cycle of debt in which borrowers take out
a loan, ostensibly pay it back, and then run out of money and have to take out numerous additional loans to afford their
living expenses. In fact,even though payday loans are marketed as a convenient way to handle unexpected emergencies,
the vast majority of borrowers use the loans for everyday expenses. Borrowers across the country pay more than $3.4
billion in fees. Further, more than two-thirds of these fees - at least$2.6 billion - are the direct result of payday loan
"churning"or rapid and successive re-borrowing.
Any of five factors can create borrower problems and can lead to payday lending's debt treadmill:
Payday Loans Still a Deliberate Debt Trap Page 2 of 2
1. Lack of underwriting for affordability- the lending model relies on borrowers'inability to afford their loans;
Z. High fees- often at an annual percentage rates of 400 percent or more;
3. Short-term due dates- usually a borrower's next payday, generally around two weeks;
4. Single, balloon payment-the entire principal and related fees are due at the same time; and
5. Collateral in the form of a post-dated check or access to a bank account-the lender is first in line to be repaid, leaving
many borrowers short of funds for living expenses.
After years of consumer-focused reforms, 22 states, including the District of Columbia have enacted laws to curb or
eliminate payday's debt trap. In recent years, states with varying locales and demographics have rejected payday
lending's triple digit rates and imposed rate caps: Arizona, Montana,and Ohio.
In 2006, enactment of the Military Lending Act created a 36 percent rate limit and prohibited the holding of a post-dated
check from active-duty military and their families.
Now, more payday-related developments are occurring at the federal level. Two regulators, the Federal Deposit Insurance
Corporation and the Office of the Comptroller, are developing guidance to crack down on payday lending by the banks
they supervise. Additionally, the Consumer Financial Protection Bureau (CFPB) recently issued a comprehensive report
that reviewed more than 15 million accounts. CFPB is considering rules to address its own finding that the typical borrower
is indebted for nearly 200 days in a year.
Even so,today 29 states still have no substantive restriction on payday lending.
Payday lenders in just 10 states collect 83 percent of all fees. Nationwide,there are 16,341 store locations; but only nine
major operators control nearly 50 percent of these stores. Leading the list of states with the most payday lending activity
are Texas and California followed by a host of Southern states including Alabama, Florida, Louisiana, Mississippi, and
Tennessee.
In the area of bank payday lending, CRL found that:
Bank payday borrowers are two times more likely to incur overdraft fees than are bank customers as a whole;
More than one-quarter of bank payday borrowers are Social Security recipients; and
Bank payday loans carry an annual percentage rate that averages 225-300 percent.
Clearly, continued state and federal reforms are needed. For a nation that prides itself on freedom, predatory debt is
simply un-American.
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dakiiM011ey
Most Americans can't afford a $19000
emergency expense
By Jessica Dickler August 11,2011: 11:19 AM ET
0
a
PN�YK tG%4::
It's less than the cost of a car repair,but many Americans would struggle to come up with$1,000.
NEW YORK(CNNMoney) --When the unexpected strikes, most Americans aren't prepared to pay
for it.
A majority, or 64%, of Americans don't have enough cash on hand to handle a $1,000 emergency
expense, according to a survey by the National Foundation for Credit Counseling, or NFCC,
released on Wednesday.
Only 36% said they would tap their rainy day funds for an emergency. The rest of the 2,700 people
polled said that they would have to go to other extremes to cover an unexpected expense, such as
borrowing money or taking out a cash advance on a credit card.
"It's alarming,"said Gail Cunningham, a spokeswoman for the Washington, DC-based non-profit.
"For consumers who live paycheck to paycheck-- having spent tomorrow's money--an unplanned
expense can truly put them in financial distress," she noted.
That's the case for Allyson Curtis, 35. "I think about it every day," she said.
Curtis was unemployed for only three months last year, but in that time she accumulated $5,000 in
credit card debt that she's now struggling to pay down. In the case of an emergency, Curtis said she
would likely postpone other payments and pile on additional debt.
She is already putting off$450 in dental work and a car inspection due to a crack in her windshield,
which will cost$300 to replace, she said.
Budgeting for an emergency fund
Many respondents, 17%, said they would borrow money from friends or family. Another 17%said
they would neglect other financial obligations-- like a credit card bill or mortgage payment-- in order
to free up some funds.
Alternatively, 12% of the respondents said they would have to sell or pawn some assets to come up
with $1,000 and 9% said they would need to take out a loan. Another 9% said they would get a cash
advance from a credit card, according to the NFCC.
Cunningham finds that particularly troubling. Neglecting other debt obligations--or worse piling on
more debt--"really exacerbates the problem,"she said.
An earlier study by the same organization found that 30% of Americans have zero dollars in non-
retirement savings. A separate study by the National Bureau of Economic Research found that
50% of Americans would struggle to come up with $2,000 in a pinch.
Has all of the market turmoil prompted you to move all of your retirement investments into cash? If
so, we'd like to hear from you. If you'd like to share your story with CNNMoney, email
blake.ellis @cnnmoney.com.■
First Published:August 10, 2011: 1:40 PM ET
TIE WALL '': JOB. '
w5 : r
DECEMBER 30, 2009; 11.27 A.M. ET
How Virginia Is Handling Payday Loans
The industry is a response to market demand.
By TIMOTHY M KAINE
With the Obama administration carefully considering major reforms to the nation's
financial system, one area that merits a closer look is the payday lending industry.
Averaging a 400% annual interest rate nationally, payday lenders have earned a bad
reputation for good reason. From the triple-digit interest rates characteristic of these
quasi-loans, to their disproportionate presence in working-class and minority
neighborhoods, it's hard to argue the payday lending industry has any kind of positive
impact. Families who take out payday loans tend to be lower income, younger, with less
education, and are less likely to own a home.
Yet payday lending is an obvious consequence of free market forces responding to
consumer demand. Payday lenders frequently justify their burgeoning industry on the
grounds that they fill a liquidity demand for a constant class of workers unable to meet
their borrowing needs in the mainstream banking and credit markets. While traditional
lending sources have struggled through the downturn, payday lenders have seen an
uptick as families managing through the economic crisis have sought relatively small
loans on a short-term basis.
For state governments, the core challenge in addressing this issue has been finding a
balance between capping the interest rate permitted on payday loans without driving the
option out of the market altogether. In my state, Virginia, the debate over how to address
the predatory nature and inherent racial disparities of payday lending led to legislative
restrictions in 2008 that reformed the standards for lenders operating in the
commonwealth. The legislation doubled the amount of time allotted to repay the loans
and mandated the creation of a statewide database of payday loan transactions to
ensure prospective borrowers hold no more than one loan at a time.
While we should regulate payday lending and other forms of predatory lending, there is a
strong need for people to have small-dollar loans in the marketplace. That's why Virginia
pioneered a new strategy to offer more than 100,000 state employees a viable and cost-
effective alternative to payday lending. In July, we established the Virginia State
Employee Loan Program, a unique partnership between the Virginia State Employee
Assistance Fund and the Virginia Credit Union.
Virginia's pilot program offers small loans ranging from $100 to $500 to state employees.
The loans are offered at an annual percentage rate of 24.99% and are repaid via direct
withdrawals from employee's paychecks over a six-month period. While there is no
penalty for early repayment, employees are limited to one outstanding loan at a time and
may apply for only two loans per 12-month period. Most significantly, to help keep state
employees on sound financial footing in the future, the loan requires borrowers to
become a member of the Virginia Credit Union and complete an online financial fitness
course on money management or checkbook management.
The results of the Virginia State Employee Loan Program suggest that if individuals are
offered an alternative to predatory loans, they take it. Just six months into the initiative,
Virginia has already issued 2,794 loans to state employees totaling $1,373,400. Nearly
half of these loans-1,310—came during the first month of the program's existence.
The overwhelming response to the program means that we are now exploring additional
resources to fund these services. At the same time, other employers in Virginia offering
similar programs are helping make the case that employer-based partnerships like the
Virginia State Employee Loan Program are a viable service with a real consumer
demand. Riverside Health System, a Newport News-based health-care organization,
launched its own loan program in 2008 to help its employees pay off high-interest, short-
term loans and is seeing similar success.
One thing is clear: As lawmakers craft their proposals for reforming America's financial
system, payday lending should be part of the equation. In the meantime, the option
remains open to employers both public and private to offer an alternative that
guarantees a meaningful payoff for our families and communities.
Mr. Kaine, a Democrat, is the governor of Virginia.
, gig -X g-44,X gg XXX.XXX7,
Squeezed by hard times,more resorting to pawnshops,payday loans-09/18/2010 I Miami... Page 1 of 5
De liiiarrti lieratb
Posted on Sat, Sep. 18, 2010
Squeezed by hard times, more resorting to pawnshops,
payday loans
BY NIRVI SHAH
nshahMiamiHerald.com
As a nurse, Melvern Thompson was used to
411,110* earning paychecks flush with overtime.
Taking home $2,000 to $4,000 a month in
addition to her regular wages made for a
comfortable lifestyle.
But as Jackson Health System works
• • "4.04:44:r . through a budget crisis, Thompson's
* ; overtime, plus another 5 percent of her pay,
.4,60
were cut Suddenly, she found it impossible
to make ends meet although she was
'441:••-::;f' working more to make up for a legion of laid
1111K„---
-off co-workers.
WALTER IWCHOT I MAW HERALD STAF0'
Joseph Nerva uses payday loans because the charges, So Thompson, along with a growing
though substantial,are clearly specified. number of Americans in the middle of what
is feeling like an endless economic
downturn, turned to payday loans to cover her monthly bills — and found herself locked into
a pattern she can't seem to break.
Getting a loan "made me $500 short for the next check. It became a revolving cycle: You
were always $500 short when you went into that payday advance. You have to pay them
back— and you need that$500."
The plight of Thompson and others suffering in this economy means the payday loan
business is booming. Payday loan centers and pawnshops have become more popular
than ever as sources of fast, short-term credit. The payday loan industry was one of the
country's most profitable last year, according to financial information firm Sageworks.
DEFAULTS: UP
I. & 11 "a _ all A- 11111Zill
banks are financing the industry, to the tune of$1.5 billion to publicly traded payday
lenders alone.
At the same time, the average pawn shop loan has increased from about$80 to $100 in
the past year and more people are defaulting on those loans, according to the National
Pawnbrokers Association.
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As the name implies, payday loans are only available to people who are working, and
users must have active bank accounts. Even as unemployment grows, the loans are more
in demand from working people whose income may have dropped because one member
of the household lost a job, a worker's hours or pay were cut and bills keep piling up.
Borrowers say they find the fees and interest more competitive than the alternative: late
charges, overdraft fees, finance charges and interest charged by utility companies, banks
and mortgage companies, said Jamie Fulmer, spokesman for Advance America, the
country's largest public payday loan company.
Annualized, payday loan interest rates may be as much as 300 percent or higher, drawing
the ire of consumer advocates and earning the industry labels including "legalized loan-
sharking," "financial apartheid" and "predatory lending."
But the cost is up front and transparent, Fulmer said.
Customers "see our product as a cost-competitive alternative. You often hear critics talk
about exorbitant annual percentage rates, but you have to look at an apples-to-apples
comparison," Fulmer said. Credit card late fees interest rates and overdraft fees can be far
more expensive on an annualized basis, he said.
THE BUS DRIVER
The price of a payday loan is exactly why Joseph Nerva, a Broward school bus driver, has
turned to them occasionally.
"They charge —you know they charge," Nerva said of the fees and interest tacked onto
the loan amount. He had stopped to use one of the many Check Cashing Stores on Davie
Boulevard in Fort Lauderdale this week to pay an FPL bill. But"it would be more
expensive to pay late fees on other bills."
Here's how the loans work, Fulmer said: A borrower writes a personal check to the payday
loan center for the amount of the loan and any fees and interest. In return, the borrower
gets the loan amount in cash and usually has about two weeks to return to the center to
repay the loan.
If the borrower doesn't repay the loan, even after a grace period, loan centers have the
option of cashing the personal check. At Fulmer's company, 97 percent of borrowers repay
loans. Of the remaining borrowers, many checks bounce --which allows the company to
begin the collections process.
A study by Social Compact, a Washington, D.C., nonprofit, found that in many of Miami's
14 inner-city communities, nontraditional financial institutions, including payday loan
centers and pawnshops, were far more common and more easily accessible than banks
and credit unions.
"Part of the reason: A bank could not sustain a presence in this area," said Carolina
Valencia, the group's director of research. "And many residents could not qualify for the
banks services" even if they were readily available.
POVERTY TAX
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However, because of the fees and interest payday lenders and related companies charge,
using them means paying a sort of poverty tax, Valencia said.
Still, the organization doesn't think payday lenders should be banished. For some people,
they are a true necessity or simply more desirable than traditional banks. Some
immigrants may not trust banks because of financial instability in their home countries, she
said.
And nontraditional places are very clear what they charge, she said. "it might be more
than what a bank charges, but there are no hidden fees. For a person that lives on a
limited budget it's sometimes a less-risky choice,"Valencia said. "The idea is not to get rid
of these services. The idea is to regulate them better and find a way to create a continuum
of financial products to serve all community needs."
Florida has some of the most stringent laws in the country governing payday loans, said
Ian A. MacKechnie, executive vice president of Tampa-based Amscot Financial. The
company is the largest Florida-based cash advance company.
Florida law caps the amount of a payday loan to $500 and limits the charge to 10 percent
of the loan amount— plus a verification fee of up to $5. The verification fee is partly to
cover the cost of recording the transaction in a state database. (The state actually charges
$1 to report the transaction, which is what Amscot passes on to customers.)
The database is used to ensure no one gets more than one payday loan from any lender
at a time and keeps people from getting a new loan less than a day after paying off an old
one. Elsewhere, the lack of such a cooling-off period means some people end up in
serious debt, fast, he said. "They go from one shop to another and people would end up
thousands of dollars in debt."
PAWNSHOPS GET PICKY
Florida law also says the maximum period of a loan is 31 days -- and if customers don't
repay the loan, the lender has to give them at least another two months to repay it, without
charging additional fees, if they go to credit counseling and set up a repayment plan and
stick to it.
In Thompson's case, pawning jewelry became a necessity in addition to payday loans.
Thompson helps support her son, who is in college, and her daughter, who lives in New
York.
"You went to the pawnshop with whatever jewelry you had just to make ends meet," she
said.
At Classic Pawn &Jewelry in Fort Laudcrdale, Brittany Thomas unfastened a ribbed gold
anklet and placed it on the counter, along with a handful of other jewelry, a digital camera
and iPod. She was hoping to pawn the items for cash.
But she walked out with all of her stuff.
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"They're picky,"said Thomas, 20, who was accompanied by her son Jacarry, 3. Then she
closed the clasp on her anklet—which was gold plated, making it worthless for scrapping -
- and walked out.
The selectivity is on purpose, said manager Tom Steiger. The store is overflowing with
people looking to pawn items, but short on customers looking to buy any of his growing
collection of computers, bicycles, watches, fishing poles and flat-screen TVs.
"No one's buying anything," he said, but people coming to the store are looking to trade
their stuff for cash to pay electric bills, buy clothes for school and fill prescriptions.
And many longtime customers who used to loyally repay their loans and retrieve their
items are defaulting, he said.
CASH FOR GOLD
Many pawn stores are staying afloat because people are coming in to sell their gold
jewelry, which stores can scrap for cash. Gold prices are approaching $1,300 an ounce.
Because of Pawn Stars on The History Channel — a program about a three-generation
family of Las Vegas pawnbrokers that is one of the most-watched shows on cable — and
because of the weak economy, "pawning has become more mainstream,"said Emmett
Murphy, spokesman for the National Association of Pawnbrokers.
"The loans are $100. They're not borrowing money to go on a cruise. We call them safety
net loans —to get them through the end of the week, put gas in the car."
In Florida, state data shows that monthly transactions at payday lenders have increased
from fewer than 200,000 in 2002 to 600,000 and higher at the end of 2009. Over the same
time period, the number of payday loan stores increased from fewer than 1,000 to more
than 1,400, and the size of borrowers' loans grew from an average of less than $340 to
more than $390.
In all last year, Floridians got 6.4 million payday loans, borrowing $2.5 billion and paying
$244 million in fees.
It's no wonder then, that Eduardo Gomez, CEO of Miami-based Zoom PayDay, said his
company hopes to have a presence in dozens of existing businesses over the next few
months. They were an online-only company until Friday, when Zoom began offering its
products in an existing brick-and-mortar store in Miami selling money orders, check-
cashing services and related items.
"There is a very real need for folks that may not be prime borrowers to get short-term
access to money," Gomez said, as well as people who wouldn't have considered a payday
advance in the past.
"It's everybody from grandparents raising their grand kids on a fixed income, people that
are making more than $70,000 a year in white collar jobs who wear a tie to work, hourly
workers, retailers, professionals that are accountants, marketing folks. People are living
paycheck to paycheck. Unexpected expenses come in and they need to find a way to get
out of all this debt and stay afloat."
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HARD TIMES IN HIALEAH
That's what happened to Kim White of Hialeah. White, who works for a group health
insurance provider, lost her mother this year and had to cover funeral expenses. She didn't
get a raise. And her car broke down twice in a week. She'd used her company-granted
personal time when her mother died and White lost a day of pay each time the car gave
out. Writing checks or using her debit card to pay for each emergency became too
expensive.
"I kept overdrafting. It was costing me like $35 per item," White said. "When I go to
[Advance America] I only have to pay back one charge, versus $35 a pop."
She said she hopes to break the payday loan habit when she gets her tax refund next
year.
That's what Lars Gilberts, director of the United Way Center for Financial Stability, hopes
for Thompson, the Jackson nurse. The center is helping Thompson with her finances.
In the meantime, Thompson will be working to cut her household spending -- drastically --
and keep her spending in check during the holidays.
"It's going to be a hard slog to the end of the year,"Gilberts said. "There's definitely a
light at the end of the tunnel."
Miami Herald business writer Ina Paiva Cord le contributed to this report.
2010 Miami Herald Media Company. All Rights Reserved.
http://www.miamiheraid.com
htip://www.miamiherald.com/2010109/18/v-print/1831649/squeezed-by-hard-times-more-r... 9/20/2010
2011 FDIC
National Survey
of Unbanked and
Underbanked
Households
Executive Summary
F�C September 2012
Members of the FDIC Unbanked/Underbonked Survey Study Group
Division of Depositor and Consumer Protection: Susan Burhouse, Sarah Campbell, Timothy Critchfield, Keith Ernst,
Ryan Goodstein, Yazmin Osaki, Luke Reynolds, and Sherrie Rhine.
Division of Insurance and Research: David Chapman, Eric Robbins, and Katherine Samolyk.
Legal Division: Leneta Gregorie
Lead Authors
Lead Statistical Analysts and Advisors
Sarah Campbell, David Chapman, and Ryan Goodstein.
Contributors:
Michael Bachman, Karyen Chu, Peggi Gill, Anirudh Sarno, Francis Solomon, David Spanburg, Masseh Tahiry, and
Kathy Zeidler.
2011 FDIC NATIONAL SURVEY OF UNBANKED AND UNDERBANKED HOUSEHOLDS 9 SEPTEMBER 2012 2
1. Executive Summary providers, while others use cash or other financial
arrangements.
The FDIC is committed to ensuring that all Americans • 8.2 percent of US households are unbanked. This
have access to safe,secure,and affordable banking represents 1 in 12 households in the nation, or
services. Public confidence in the banking system derives nearly 10 million in total. Approximately 17 million
in part from how effectively banks serve the needs of the adults live in unbanked households.4
nation's diverse population.To assess the inclusiveness of
the banking system, and in response to a statutory • The proportion of unbanked households increased
mandate,the FDIC conducts biennial surveys of house- slightly since the first survey. The estimated 0.6
holds to estimate the proportion of households that do not percentage point increase represents an additional
fully participate in the banking system.'This report pres- 821,000 unbanked households.'
ents the results of the 2011 FDIC National Survey of • 20.1 percent of US households are underbanked.
Unbanked and Underbanked Households. This represents one in five households, or 24
The FDIC partnered with the US Census Bureau to million households with 51 million adults.6 The
conduct this survey in June 2011,collecting responses 2011 underbanked rate in 2011 is higher than the
from nearly 45,000 households.The FDIC used survey 2009 rate of 18.2 percent, although the proportions
responses to categorize households'banking status as are not directly comparable because of differences
unbanked,underbanked,or fully banked.Unbanked in the two surveys.
households are those that lack any kind of deposit account . 29.3 percent of households do not have a savings
at an insured depository institution.Underbanked house- account, while about 10 percent do not have a
holds hold a bank account,but also rely on alternative
financial services (AFS)providers.'Fully banked house- checking account.About two-thirds of households
have both checking and savings accounts.
holds are those that have a bank account of any kind and
have not recently relied on any of the AFS included in • One-quarter of households have used at least one
the survey.' AFS product in the last year, and almost one in ten
Key Findings households have used two or more types of AFS
products. In all, 12 percent of households used AFS
More than one in four households (28.3 percent) are products in the last 30 days,including four in ten
either unbanked or underbanked,conducting some or all unbanked and underbanked households.
of their financial transactions outside of the mainstream
banking system.Many of these households rely on AFS
Section 7 of the Federal Deposit Insurance Reform Conforming Amend-
ments Act of 2005(Pub.L.109-173)calls for the FDIC to conduct ongoing
surveys,"on efforts by insured depository institutions to bring those indi-
viduals and families who have rarely,if ever,held a checking account,a
savings account or other type of transaction or check cashing account at
an insured depository institution['unbanked]into the conventional " In addition,unbanked adults may also reside in other households.
finance system."Section 7 further instructs the FDIC to consider several Adults are defined as persons aged 16 and older.This is a lower-bound
factors when conducting the surveys,including estimating the size and estimate of the number of unbanked adults in the United States because it
worth of the unbanked market in the United States and identifying the is based on the assumption that all adults residing in a"banked"house-
primary issues that prevent unbanked individuals from establishing hold are banked.A banked household may contain one or more unbanked
conventional accounts. adults;these unbanked adults residing in banked households are not
z For the purposes of this report,households are identified as included in the 17.6 million adults number cited in this report.
"unbanked"if they answered"no"to the question,"Do you or does s All reported differences resulting from direct comparisons described in
anyone in your household currently have a checking or savings account?" the text are statistically significant at the 10 percent level,unless other-
Underbanked households are defined as those households that have a wise noted.
checking and/or a savings account and had used non-bank money orders, a This is an upper-bound estimate of the total number of underbanked
non-bank check cashing services,non-bank remittances,payday loans, adults in the United States because it is based on the assumption that all
. 4. . -. ..• ... •dJiauseholcLate_und-ettzanked.However.
the past 12 months. an underbanked household may contain one or more adults who are not
Fully banked households may have used AFS more than a year ago or underbanked.
may currently use types of AFS not included in this survey.Based on the ' Revisions made to the 2011 survey instrument led to changes in the
banking status classification used in this report,fully banked households definition of an underbanked household.Specifically,the inclusion of
are the most engaged in the financial mainstream.However,there are still questions regarding households'use of non-bank remittances in 2011 and
opportunities to improve the quality and sustainability of banking relation- changes to the questions regarding the time frames during which house-
ships for some of the fully banked households(e.g.,expanding the use of holds used AFS make it impossible to directly compare underbanked esti-
savings accounts or bank credit products). mates across years.
2011 FDIC NATIONAL SURVEY OF UNBANKED AND UNDERBANKED HOUSEHOLDS • SEPTEMBER 2012 3
Figure 1.1 2011 Banking Status of US Table 1.1 Banking Status for Select Demographic Groups
Households(Percent) Percent
Ban a',but Seect Demographic Percent Percent Fully
Status Unknown'. Groups Unbanked Underbanked Banked
2.9
Fully Banked,68.8 All households 8.2 20.1 68.8
Blacks 21.4 33.9 41.6
Unbanked,8.2 Foreign-born non-citizens 22.2 28.9 45.8
Households experiencing
unemployment 22.5 28.0 47.5
Underbanked, Lower-income households(less
20.1 than$15,000) 28.2 21.6 47.6
Unmarried female family
households' 19.1 29.5 48.4
Hispanics 20.1 28.6 48.7
Notes:Percentages are based on 120.4 million US households.Percentages may not sum to 100 because of rounding. Households with householders
•These households are banked,bad there,s not enough Information to determine er they are underbanked.
under age 24 17.4 31.0 49.7
Figure 1.2 2011 US Households by Account •The Census Bureau classifies households into different household types.For example,a family
household is a household that includes two or more people related by birth,manage,or adoption and
Type(Percent) residing together,along with any unrelated people who may be residing there.Single mothers are an
example of female family households.For more detail,refer to the Technical Note(Appendix E).
Savings Account
Only.2.0
s Comparing the demographic composition of unbanked,
Checking and underbanked,and fully banked households shows stark
Checking Savings Accounts, g Account
67.2 Only,21.1 differences between these groups.The same demographic
• groups are generally overrepresented among both
` . Banked but unbanked and underbanked households.However, on
unknown Type.1,5 many measures,such as employment and income, under-
Unbanked,8.2 banked households are more similar to fully banked house-
holds than to unbanked households.
Notes.Percentages are based on 120.4 million US households. Percentages nay not sum to 100 because of rounding.
Among unbanked households,slightly more than half
Unbanked and Underbanked Households have never had a bank account.Relatively high propor-
tions of Hispanic (14.7 percent) and foreign-born non-
Unbanked and underbanked households are not homoge- citizen households (18.9 percent)have never had an
neous populations.On the contrary, these groups have account.
diverse demographic characteristics,past banking experi-
ences,reasons for not holding an account,and future The most common reasons why households report they do
banking plans. not have bank accounts are that they feel they do not
have enough money for an account,or they do not need
The highest unbanked and underbanked rates are found or want one.Households that have previously had an
among non-Asian minorities, lower-income households, account are less likely to report that they do not need or
younger households,and unemployed households.'Close want an account relative to those that have never had
to half of all households in these groups are unbanked or one.
underbanked compared to slightly more than one-quarter
of all households.Relative to 2009,the estimated Certain segments of the unbanked population are more
unbanked rates in 2011 are essentially unchanged for most inclined to open an account.While most unbanked
groups.9 households report that they are not likely to open an
account in the future,one-third (33.9 percent)report they
a are"very likely"or"somewhat likely"to do so.Among
The demographic characteristics of a household,such as race,age,
education,and employment,are taken to be those of the owner or renter unbanked households more likely to want to open a bank
of the home(i.e.,"householder"),unless the characteristic is one defined account in the future are those that were previously
at the household level,such as income or household type.For conve- banked or that became unbanked within the last year,as
nience,some abbreviated language will be used to refer to the demo- well as those individuals who are younger, unemployed,
graphic characteristics of households.For example,the term"black have some college education,or are in family households
household"refers to a household for which the householder has been
identified as black.Note that other members of a household could have headed by an unmarried woman.The likelihood of open-
different characteristics from those of the householder.For instance,an ing a bank account also increases with AFB use and with
unemployed household is defined as a household whose householder is the use of a payroll card or a prepaid debit card.
unemployed,but other household members could be employed and earn-
ing income.The income measures included in this report reflect the
income earned by all household members and not only the householder.
e Reported differences between groups described in the text do not
account for other geographic or demographic factors that may also
contribute to the disparities.
2011 FDIC NATIONAL SURVEY OF UNBANKED AND UNDERBANKED HOUSEHOLDS • SEPTEMBER 2012 4
Use of Alternative Financial Services and Prepaid Implications
Debit Cards
The survey results presented in this report suggest four
About 25 percent of households, including all under- lessons for policymakers,financial institutions,and other
banked households and 64.9 percent of unbanked house- stakeholders working to improve access to financial
holds,have used AFS in the last year.The use of both services.
transaction and credit AFS became more widespread
between 2009 and 2011,with higher proportions of house- 1. Understanding the characteristics of different
holds reporting having used either product. segments of the unbanked and underbanked populations
might increase the efficacy of economic inclusion strate-
AFS transaction products(i.e.,non-bank money orders, gies. Different subgroups among unbanked and under-
non-bank check cashing,and non-bank remittances)are banked households have different characteristics and
considerably more widely used than AFS credit products varying levels of demand for banking services.Under-
(i.e.,payday loans,pawn shops,rent-to-own stores,and standing these differences could lead to the development
refund anticipation loans).In the last year,23.3 percent of of products and strategies that more effectively engage
households used transaction AFS and 6.0 percent used these households. For example,economic inclusion strate-
AFS credit product. gies that target unbanked Hispanic households might
consider that this group includes two distinct segments
The relationship between household banking status and with starkly different financial services behavior. One
AFS use is complex.A non-trivial share of unbanked substantial segment(29.6 percent) of this group does not
households(29.5 percent)do not use any of the AFS use any financial services from bank or non-bank provid-
providers asked about in the survey,suggesting they rely ers,while another uses AFS more actively than any other
primarily on cash.However,overall,unbanked households ethnic or racial group:51.8 percent of unbanked Hispan-
are more active AFS users than underbanked households. ics used AFS in the last 30 days,including almost a guar-
Unbanked households are more likely to use multiple ter(22.5 percent) who used two or more AFS in that
products and to have used AFS,particularly transaction period.In contrast,among other unbanked segments,only
products,more recently and more frequently than under- about 43 percent of white or black households used AFS
banked households.The use of AFS credit products does in the last 30 days and about 14 percent used two or more
not differ markedly between unbanked and underbanked in that time frame.
households,except for payday lending,which typically
requires a bank account,making it more prevalent among In many cases,underbanked households,and particularly
the underbanked. unbanked households,face challenging economic circum-
stances, such as unemployment.Understanding these
Unbanked and underbanked households value the conve- families'varying situations could help drive collaborative
nience of transaction AFS and perceive AFS credit to be efforts between financial institutions and public and
easier to obtain than bank credit.The most common private entities that serve other needs of this population
reason households use transaction AFS is convenience, (e.g.,employment or social services agencies).
while the main reason households use AFS credit products
is because they are easier or faster to obtain than bank 2. Having a bank account does not guarantee long-term
credit.The main reason many unbanked households use participation in the banking system. Households can and
AFS providers for transaction services is because they do do cycle in and out the banking system over time.For
not have a bank account.Among underbanked house- example,nearly half of unbanked households had an
holds,the ability to get money faster and the perceived account in the past,and nearly half(48.2 percent)of
lower cost of non-bank money orders were also common these report that they are likely to join the banking system
reasons for using AFS providers. again in the future.Also,almost a quarter of fully banked
households have used AFS in the past and could have
Although not considered AFS in this survey,prepaid debit been considered underbanked at that time.Economic
cards continue to be more widely used among the inclusion efforts require not only banking the unbanked,
unbanked and underbanked than among fully banked but also retaining and better engaging current bank
households.With one in ten households reporting use of a customers to prevent them from becoming unbanked or
prepaid debit card,overall use of the product appears to be underbanked.The offering of low-cost deposit accounts
relatively stable from 2009.However, the proportion of with transparent fee structures could play an important
unbanked households that have used a prepaid debit card role in this effort.
climbed from 12.2 percent to 17.8 percent in 2011,with
no significant change among the underbanked. 3. Households with banking experience appear to have
more positive perceptions of having an account and rely
less on AFS.Unbanked households that previously had a
2011 FDIC NATIONAL SURVEY OF UNRANKED AND UNDERBANKED HOUSEHOLDS • SEPTEMBER 2012 5
relationship with a financial institution are more likely to
see value in having a bank account than unbanked house-
holds without this relationship. Previously banked house-
holds are more likely to want to open an account in the
future and less likely to say that the main reason they are
unbanked is because they"do not want or need an
account."
In addition,survey results show that households that have
an account,particularly a checking account,tend to use
transaction AFS less actively than those that do not have
a checking account.On average,unbanked households are
more active transaction AFS users than the underbanked.
Even among underbanked households,those that only
have a savings account are more active transaction AFS
users than underbanked households that have a checking
account.
4. Financial institutions interested in pursuing the
market opportunity that AFS users present might need
to more clearly demonstrate the value in having a bank
account to AFS users who perceive non-bank financial
services to be more convenient,faster, less expensive, or
to present lower barriers to qualification. For example,
banks might find it useful to promote mobile technology
to increase convenience,thereby addressing the most
commonly reported reason households use non-bank
check cashers. In addition,for the notable share of
unbanked and underbanked consumers who cited speed as
a reason for using non-bank check cashing,efforts toward
expediting the availability of deposited funds might make
deposit accounts more appealing.Making affordable small-
dollar loans available with streamlined but solid under-
writing could help attract consumers who currently rely
on credit AFS.
2011 FDIC NATIONAL SURVEY OF UNBANKED AND UNDERBANKED HOUSEHOLDS • SEPTEMBER 2012 6