Today i will be talking to professor lisa servon from university of pennsylvania and author of unblinking of america that was just released this month. Thanks for having me. Host why did you write the book was written for . Guest i rode it because i could not understand originally why alternative financialservices like payday lenders why so many people were using them in the course of my research i learned that banks were not serving the lowend and i also realize there were some good alternatives coming on board part of the first book i have written that is not academic eroded for the policymakers, those working for financialservices industry and you and me that may not be happy with the financialservices theyre currently using. Host what do mean by alternative Financial Service providers blacks what is that and why is it called alternative . Guest ic consumer financialservices industry into three components one is a mainstream component the second is alternative checked cashiers or payday lenders or pawnshops or read to own and they are growing as consumer Financial Services changes within normal Financial Services for their use by many americans. You talk about these alternative providers why a that is the impression . That is what led me to the question so many people are using these services there must be a reason because i know that families to have very little money they know where every penny goes the other had to be a better reason. Host your slightly critical of the mainstream banks essentially you talk about their more interested in learning revenue cough through fees rather than the Business Model. You tell a great story of the Community Bank spirit yes. Was interesting and was not thinking about that what started research but i worked as a check cashier that took me back agrobusiness small immigrant town Central New Jersey my grandparents came from poland and went to the bank with my dad saturday mornings we go to the butcher and the post office we would end that that the bank it was a Committee Space to bump into neighbors my dad knew the tellers and i would get a lollipop for borne of a seven i got my First Bank Account and for those who are my age or older above my birthday money there, a savings from my allowance and the tips that aaron is a waitress and it was like a right of passage that i was conditioned to be a particular type of consumer with the interaction with the bank but now obviously my relationship is different now they think of a machine on the side of the building i dont know any tellers and they dont know me but we have lost sight not only that type of the relationship peace but the way they make money has changed as well. Back in the era of the early 70s they would make their money from interest threeperson interest on the savings account you pay 6 percent for the loan bankers could go to the golf course but that doesnt happen anymore. So interestrate were less predictable way and regulators say we saw what happened with the savings and loan crisis so figure out another way. So now we pay between 27 and 35 for an overdraft they made 32 billion in Overdraft Fees alone so that Business Model has created a situation to have more money to keep into the account in not overdraft the account because we dont make those miscalculations ended has driven a lot of people away from the bank. So what does your Research Show one generation ago . And are they always outside of the system breaks. However we have an act called the Community Reinvestment act that was a response to the banks to draw a red line with the would refuse to lend. So theyre not serving everyone well people love lightcolored and american beauties who felt the banks were not serving them. It didnt really have raised in the teeth until 1992 when it was amended. While the banks were not using the fees as the income generator but there continues to be where we see africanamericans paying more for credit and employment being charged to percent more. We saw that clearly in the mortgage crisis people of color who would have qualified that did not get one and it was very difficult to modify those, it should does that change the Publics Trust and banking . Zero lot. Across the board. So the trust is at an alltime low mentioning africanamericans and latinos much more of the wealth came from a lowercase and that can be traced back to differential mortgages. So the trust is set the alltime low with the people who were least able to bounceback have been the most hurt and have the least amount of trust. In your book you talk about working in these alternative Financial Service providers you saw that link that you were not expecting. The reason i went to work as a teller is it seemed the only way i can do answer the question why so many people reusing we services so i spent four months working as the check cashed her then working as a lender and a payday lender. I notice many people talk about having Bank Accounts but then after both of those still inside keynote from behind the counter in the interview lot of the customers and i told them why and was working there. I was up front and was not complete the ethical just to pretend. Bill when i talked about why or i found 50 percent of Check Cashing customers had Bank Accounts or had them and close them but in terms of why they use Check Cashing would is less expensive the Check Cashing was more transparent they knew what they were paying with those surprises and they trusted it they felt like they had relationships with the people that worked there. And to do something with the czech cashiers. To be one of the most Financial Products it was very clearly marked. Speaking to the audiences and undecideds thespians uh teller windows what is for sale homage to pay for each so was 1. 9 5 of the face value and cost 0. 89 for a money order it is less than what the post office charges they would bring their bills that would cash the check then apportion up the money on top of the bills not to pay the full bill but to figure out how much do i have to pay to the phone company or to deal lecture company or pay the rent in full. Then but never they have left was what they had to live until their next paycheck but theyre happy with the knowledge they knew what they were getting and how much it cost in what bills would be paid immediately if they could deposit that and then go on line to pay their bills it was hard to be certain the bills would hit their account after the check cleared where the biggest complaints that put their check in the account they did not know when it would clear sometimes they needed to pay the bill right away or though late fee soleil was an expensive decision but also logical. In the book you talk about so have a surprising response of puerto rico woman in her 50s and to come to my window with the information, the computer screen to pay 20 every time she came in. And to explain what they needed to do. To create an arrangement which is interesting in and of itself that would have been charged the bad jackie to keep track of the customers bad behavior even if it is not your fault you made be kicked out of your bank account and then you cannot get another account for a couple years so they say i cannot pay that todays so what do we do . So we say sorry we need a 20 the teller said of course, not so that is the good example without being penalized so do uc to create opportunity spinet there has been such a change the guy who hired me said by way of illustration banks want one customer with a milliondollar is inject cash schurz want a million customers with 1 nobody can argue with that like every other profit seeking corporation the question is if they are ethical is a the process because they have a Critical Role should be held to a different sets of rules. A do think it is an opportunity for the alternative and other businesses to solve the problem in another way. And to some extent to fill the gap to cause people to choose what they cannot afford to. So we will get back in some may argue you have a portrayal of those providers but you also caution that they need to be regulated so hows you feel about that balance . It is particularly tough there are five federal agencies for and then all talk to reach other they dont necessarily coordinate and it is important to point out they are regulated that the state level not the federal level except what you mentioned is coming down with or regulations on payday and vendors which is probably a good example right now we have a situation where 13 states it is not legal to make the payday loans. But the states that do with different fees, Interest Rates and terms of is hard to make sense of that people crossing state lines are going online so this is the case where federal regulation is appropriate to have a uniform set of laws and some of the rules coming down make a lot of sense probably the most specifically is to pay regulation. What people have argued is that people who take out payday loans are not using them away that they were designed. Very small loans between 50 and 300 that have very quick due dates either two weeks or four weeks after they are issued and they are expensive because 15 for every 100 borrowed. But theyre not advertised because of they take that 100 loan bank cannot pay it back the situation caused the uptodate about in the first place has been rectified but they dont have a windfall to rectify that so they take it out again in two weeks. It is true it is problematics of how they pay 30. And the treadmill keeps going faster and faster so they will pay much more alternately. So what theyre prepared to do is say ascertain if the bar were is a borough to pay that back which is hard to do but that does make sense and the fact the lenders have to do some work before the bar were can get it brings other competitors into the market they want that loan immediately they do right now and intendants they have the dollars in their hand but if there is a short waiting period that will allow other lenders making loans much more cheaply it could be more expensive but lowers the cost for a lot of people from the payload that could be as high as 300 . So you are looking what you think the states are doing right . Use specifically mention colorado. Where do you see the states particularly smart on the issue . Period from the Research Perspective it is interesting with a different experiments going on. Colorado outlawed the lumpsum loan to pay old thing back immediately and turned them into installment loans you have the time period to pay a back over all that is probably good. Because it gives people more time and lessens the cost to roll with over. Think we need to do more research on before and after and in some instances when the state outlaws there is an increase of overdraft which is the essentially the shortterm loan if you could convert that interestrate so we have to be careful to make sure we dont think were doing Something Better but the outcome is better than we need to do more research to figure that out but the trend overall is starting to change anticipation of the rules coming down to the installment loans and that will help but there probably will be a stall with the regulation of all people are waiting for the rules to come down. So we see is the Financial Markets some investors are looking closer investing in subprimal creditcard lending. That has changed quite a bit since the card act, will that be a big threat to pay day lending greg. Has the potential. The build card was really created to be more transparent and an ethical alternative to target people who otherwise would have taken out payday loans with a 500 limit that limits someones opportunity to get a large loan but it does offer the opportunity to pay back in installments and have the of the way to know that they have the credit and they can manage it. So far it does look promising. And given the work that went on with the card act there is potential for the credit card marketed to the supply of population to be a real alternative. Some people argue a complete ban on that style of lending or the user recaps the military landing capsule loans for the Service Members but someone argue those types of interventions actually create an environment to offer better products such as fuel vehicle standards or better cars come onto the market corrects. If we have these ability to pay rules some will create a more competitive marketplace and those who are entering we see those actors. It is not that easy to figure how to do the underwriting to make a profit so we have seen that. It took about eight years before made a profit the was a lot of Venture Capital the some of the models could scale up and certainly if there are these regulations bello were the capital we may see innovation, up. But the central question is expensive credit better than no credit at all . Wanting it tried to do is not just how that argument to ban the payday lenders but the situation the find themselves in. With focusing on the of lenders and then we still have the demand so the supply issue in those that made payday lending small to those levels of interviews regularly. Or whether there simply there. Same with credit cards we see it increase in usage. We also see a shift in use over time. In terms of when people take on credit. Lets talk a little bit about the regulators by your comments it sounds that you really feel like the fdic has really put a moral preference on having a bank account or that they favored the idea that every citizen should have a bank account do you think every citizen should have a bank account . It works for me and it works for people like me in to have stable incomes and good jobs and can afford to save and had a relatively high balance but i think the Banking Industry needs to change. In order for that to be the suitable answer for every american and i think we have it a little bit backwards. Some of the programs that are being pushed are people opening Bank Accounts but without making sure that the products and services that are available to them actually work. Credit unions are often a viable alternative. It is also not that easy for people to figure out how and when to open a bank account. People say theyre not happy with their bank but they dont know what to do and they dont know what the alternatives are. We talked about the data about how more and more Financial Institutions are really dependent on Overdraft Fees and other charges like this and its not just big banks its true of Smaller Banks as well. I am concerned about the fact that they hold half of our deposits. At the same time i think a lot of Smaller Banks had had the same practices in order to compete and thats troubling and also makes it harder for people to say i will just go to the bank on my corner because that will be better. I do have a button on my website that is called how to leave your bank. How they can go about figuring out whether the Financial Services that theyre using now are the best for them and where they can find the credit union that they can join what else do you think they need to change about their mindset. They might be partial to banks over nonbank Financial Advisors but what else. I think there are things at the regulators could do to solve some of the problems. Its what my customers told me about. When i talked about was transparency. I kind of painted that picture of what it looks like most people that are watching probably know what it looks like. They may not had registered that you dont see anywhere what is for sale what are the products how much they cost. Are there different kinds of options for these. You have to opt in to overdraft protection. Lifting up the important decisions about what kind of account you can get whether it makes sense for you to have that protection or not those are really important and one of the things that i advocate for in my book is Something Like a financial fact box. The way we have nutrition facts on the side of breakfast cereal and you can stand sidebyside probably not in a bank because we do have a Financial Services marketplace. It would be nice. You could say a minute compare that. Another thing that i think that the regulators could help us to is to evaluate one provider. We live in a city where restaurants are regulated by the Health Department and every restaurant has a b or c in that window. Its hard to miss. I dont know about you but i do not order thai food from the bnc in my neighborhood i dont know whats going on in their kitchen. People could say this is kind of a housekeeping thing. One thing i a lot of ideas is that there are products and services that very innovative people are trying to create to help serve People Better in the consumer Financial Services industry that are having trouble getting through. The ability to have drug makers test drugs before they go on the market to see if they are safe. The uk has a regulatory sandbox. Its kind of test market something before it has to go through all of those regulatory hurdles. Those are three things that they could do to help speed up this problem. As you know they do have a project catalyst that is helping innovators bring new products to market. How do you think the regulators need to change in terms of interacting more competition to a market that often sorely lacks it. Being a little bit more open to it is the first thing into realize the conversation with these writers. And work with them more closely to make a determination about whether they are safe. Seen that they dont fit into the preexisting box. Out of the habit o