Good Time to Pursue More Services for Unbanked

MICHAEL S. BARR

Good Time to Pursue More Services for Unbanked

By EILEEN COUNTER CU, Times Correspondent-at-Large

Credit Unions Times, May 12, 2004

        ANN ARBOR Mich. - Processor Michael Barr assigns efforts to improve financial services for low-income families over the past few years an 'incomplete' grade.
        However, Barr suggests the current election year may actually be a good time for credit unions to push for improvements and boost that grade.
        "I think an election year is a great time to make this an important issue. Candidates are going to have to take a stand if credit unions ask them to," Barr declares.
        "Low-income people need access to basic banking services. Credit unions are well-positioned to help them get such access, bat it requires thinking outside the box and thinking about new products and services that rely on lower-cost and lower-risk methods of delivering services to the poor."
        Barr, assistant professor of law at the University of Michigan, teaches classes on Congressional Oversight and the Executive Branch and on the legal structure of financial institutions. He's no stranger to activities inside the Washington Beltway, having served as special assistant to Treasury Secretary Robert Rubin from 1995 to 1997 and as deputy assistant secretary of the Treasury for community development policy from 1997 to 2001.
        In June, 2001, as a Brookings Institute Fellow, he wrote a paper on "Financial Services in the 21st Century: Five Opportunities for the Bush Administration and the 107th Congress." In that paper he defined key objectives the federal government should pursue to promote economic opportunity fur low-income families and communities:

Expand access to capital and financial services through mainstream banks and thrifts, particularly by ensuring that the Community Reinvestment Act remains effective.
Provide incentives and better information to encourage investment in central cities and rural areas, "new markets" that present untapped potential for economic growth.
Combat abusive and predatory lending practices that threaten to undermine progress in democratizing access to capital.

I think if credit unions decided expanded access to financial services for low-income families was a really critical item on the legislative agenda, they could make a huge difference in drawing the attention of senators and representatives to the issue. -Michael Barr

Bank the unbanked with innovative new products and services, catalyzed by new incentives for financial services far the poor.
Promote saving among the poor through wide- scale establishment of Individual Development Accounts and other mechanisms.

        Has there been much progress?
        "Well, there's still an enormous amount of work to do," Barr says. "Part of the problem is the country's attention has been focused - as it ought to be - on the issue of terrorism.
        The (Bush) administration did launch the New Markets Tax Credit Program the Clinton administration had enacted and that I worked on for three years. On that I think they've done quite well."
        At the same time, Barr sees as a step backward efforts to impose a higher threshold defining "small banks" under the Community Reinvestment Act. There has been no movement on a tax credit for financial institutions to offer low and no-fee accounts, he continues, and no real progress on the federal level to combat predatory lending.
        In an article just published in the Yale Journal on Regulation, Barr recommended again government incentives to encourage financial institutions to launch financial and technological innovations easing access to financial services for the poor.
        He especially likes the idea of electronic payment systems that can provide low-income households access to online debit at ATMs and POS terminals and use of the ACH for direct deposit and bill payment. He does have mixed feeling about credit unions receiving government incentives for such services.
        "Credit unions are supposed to have, as part of their core mission, serving people "of modest means. One of the reasons credit unions get a tax exemption under current law is credit unions are supposed to meet that mission. So in a sense credit unions already do get an incentive for serving such persons. "On the other hand," Barr continues, "it is possible to structure a credit so for-profit subsidiaries or CUSOs could receive a tax credit for their services on behalf of the credit union in offering such accounts*
        Barr definitely believes credit unions can play a vole in encouraging legislation to expand banking services for low-income households.
        "Credit unions have organized very effectively in the past for credit union legal reforms. They certainly did while I was in the administration. The credit union movement is strong and important across the country," he states.
        "I think if credit unions decided expanded access to financial services for Sow income families was a really critical item on the legislative agenda, they could make a huge difference in drawing the attention of senators and representatives to the issue. As a policymaker I was deeply impressed with the ability of credit unions to organize, mobilize and demonstrate to Congress the importance of the credit union movement."

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