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March 17, 2006
Clayton Conference Center
University of Delaware
Newark, Delaware

sponsored by
Institute for Public Administration

co-sponsored by
Center for Community Research and Service, University of Delaware
Metropolitan Wilmington Urban League
Delaware State Bar Association

The High Cost of a Low Income:
Financial Services in Underserved Markets
Louis L. Redding Public Policy Forum

Matt Fellowes, a senior research assistant at the Brookings Institution in Washington, D.C.,: “Across the 12 metropolitan areas in our sample, there are approximately 5,243 alternative providers of check-cashing and short-term loan services that collectively earn about $3.2 billion in annual revenue.” (UD Public Relations)

Introduction

Issues concerning financial services in minority and other underserved communities have attracted a considerable amount of attention in the media, among financial services professionals, by regulatory agencies, academics, and consumer-advocacy groups. Much of the attention has focused on sub-prime lending. These are loan products marketed to individuals whose credit histories do not qualify them for lower-cost conforming mortgage products. The rapid growth of sub-prime lending has created opportunities for many low- and moderate-income families to realize the American dream of home ownership. However, there are many challenges that exist for both lenders and borrowers who participate in the sub-prime market.

Underserved communities face a number of challenges in gaining access to financial services. These communities have seen an influx of financial service providers that are not part of the traditional banking community. One group consists of payday lenders. Payday Lenders provide short-term loans of up to $500 that can be obtained at check-cashing outlets, pawnshops, and independent storefront operations. Interest rates for such loans are high, ranging anywhere from a 30 to 910 annual percentage rate.

	Government session panelists U.S. Rep. Mike Castle, U.S. Senator Tom Carper (background), Delaware Banking Comissioner Robert Glen, and Delaware Insurance Commissioner Matt Denn discuss their views on promoting financial practices to help the underserved.

Because of the many issues that low- and moderate-income individuals encounter in securing access to financial services, groups representing a variety of interests have stepped up their efforts to increase financial literacy in low-income and minority communities. Efforts along these lines should aid vulnerable populations in making important financial decisions. The Louis L. Redding Public Policy Forum involved a discussion of a number of issues that underserved communities experience. Our goal in hosting this forum was to promote a constructive and informative dialogue about these issues.

This program consisted of two morning sessions and two afternoon sessions. At noon, there was a luncheon with keynote speaker Jack Markell, Delaware State Treasurer. Each session concluded with a question-and-answer period with the audience. The presenters included elected officials, bankers, representatives from federal and state regulatory agencies, financial services professionals, lawyers, academics, and community leaders. The audience included attorneys, financial services professionals, community and consumer groups, students, the media, and others interested in these topics.

Also see UDaily story (www.udel.edu/PR/UDaily/2006/mar/forum032106.html).

For more information on this topic or this public policy forum, please contact Dr. Leland Ware by phone (302-831-8971) or e-mail (lware@udel.edu).