Carrie Sheffield, senior policy analyst at Independent Women’s Forum, joins She Thinks to discuss how the Left is forcing those with lower incomes toward riskier and more expensive alternative banking options that could push them over the financial edge.
And welcome to another edition of She Thinks, a podcast that allows you to think for yourself. Imagine that? This is Kelsey Bolar, guest hosting today for Beverly Halberg, who is out enjoying some time off. And today I am joined by my colleague at Independent Women’s Forum, Carrie Sheffield. Carrie, welcome to the show. You have a long bio. I’m going to read just a few of the highlights here for those who aren’t familiar with her work. Carrie is a columnist and broadcaster in Washington, DC, senior policy analyst with Independent Women’s Forum. She earned a master’s degree in public policy from Harvard University concentrating in business policy. She earned a BA in communications at Brigham Young University and completed a Fulbright fellowship in Berlin. She managed credit risk at Goldman Sachs and rated healthcare bonds at Moody’s and later researched for American Enterprise Institute Scholar and Edward Conrad, and is currently serving as a journalism fellow at the Steamboat Institute where I had the honor of doing something similar just a few years ago.
So Carrie, I know there’s even more to your bio there, but welcome to the show. It’s safe to say you are very highly qualified for the topic we’re going to tackle today.
Kelsey, thanks so much for having me. Good to be here.
Yeah. So what we’re going to talk about today is an issue that you recently published a policy focus for Independent Women’s Forum, “Protecting Lending Services for Unbanked and Low Income Americans.” And let’s start out by addressing this fundamental question, who are the unbanked? Because we have to be honest, if you have never been unbanked, you probably hardly even know what that means. But it’s a pretty significant issue impacting a significant number of Americans. So let’s start there.
Yes, exactly. And I’m really happy to talk about this topic because I think it really should get more attention because I think that we should really be caring in our society about the most vulnerable. And people who are unbanked, or as they like to say underbanked also, or maybe you have some banking resources, but not full board. They tend to be the most vulnerable members of our society. And we really need to be focused on helping lift everybody. As they say, a rising tide lifts all boats. And so who is, to answer your question, who is the unbanked in America? It is about 5.4% of the US population. This is according to 2019 data. That’s the most recent federal data that we have from the FDIC, the Federal Deposit Insurance Corporation. And it’s about 7.1 million people. And it tends to be people who are on the lower end of the economic ladder.
And it is generally associated with people who are racial minorities, Asian Americans, and also a lot of immigrants, people who come here. And there are lots of reasons why people are unbanked. And what that means is that they don’t participate in our financial services industry. They don’t have a checking account. And a lot of times there are issues of distrust. So a lot of times an immigrant will come here and they, maybe they came from a country where the banking system had very low trust. And so they aren’t comfortable participating in our financial services industries. And then another barrier to being in the banking system is that they don’t meet the requirements for minimum balances in order to open an account or to sustain an account. And so that’s another barrier that’s very common that we see among people who are unbanked or underbanked.
So for those who are unbanked or underbanked, what are their options currently and what type of challenges might they face if Democrats in the Senate have their way?
Yeah. So there are a number of products that people who are unbanked or underbanked utilize and they’re in the marketplace. And there are people who like to go after them. They tend to be on the left, the people who tend to attack these products that serve poor people and people of color and people who are vulnerable. So it’s unfortunate that people are trying to take away the very products that are lifelines for people who are unbanked. And it is usually, it happens over and over we see in policy this notion of an unintended consequence that when you might have a good intention in your heart or your head, but the outcome is going to be very different.
So for example, to answer your question about the products, there are products like check protection or check fraud protection programs. This allows your check, if you are living paycheck to paycheck, it can help prevent your check from being bounced. And it advances the funds to the clients usually within 72 hours for a maximum of 25K. So that’s one option that’s common. They’re also prepaid creditor or debit cards. So for people who aren’t really involved in credit cards or in banking, they do just a prepaid filled debit card. And that’s an easy way to move cash around. There’s also another product, short-term installment loans, and some of those people on the left like to call these payday loans. And there’s a lot of misperceptions about even just that word, payday loan has a pejorative phrase for people in the media that create this idea that if you are using a short-term installment loan that you’re being price-gouged and that the interest rate is predatory. But when you actually talk to the consumers who use these products, they actually see them as a lifeline.
And the alternative, again, it’s the unintended consequence. When you put on hyper-regulation, you actually end up driving people into the black market and you actually end up driving them into the arms of even less regulated products and even less reputable products and less able to provide services that are needed. Some people won’t even have a service at all at that point.
Absolutely. I first learned about payday loans as payday loans, short-term loans, often that’s even, I guess, being generous because some on the left will call them loan sharks. I first learned about these types of loans through my work on an Obama-era program called Operation Choke Point. And this isn’t a name that Republicans or conservatives gave the program. That’s actually the name that the Obama administration came up with under former attorney general, Eric Holder. And the goal was to squeeze unfavorable industries out from the banking system because they knew if you cut off Americans’ access to essential financial services, you basically cut them off from our entire economic system. And so they figured out, well, if we go after gun sellers, ammunition dealers, for example, we don’t have to pass legislation to stop Americans from being able to purchase firearms or ammunition. We can just cut off their ability to bank the gun sellers, and then they can’t sell anymore.
It was obviously a very controversial backdoor way about going about this. And on that list of unfavorable sellers were these short-term lenders, payday lenders. And I actually went in person to a couple of these lending offices, these banks, and talked to some Americans about why they do this and asked them, “Do you think it’s unfair what you’re being asked to pay?” Because often, for those who don’t know, you might be getting $100 short-term loan in order to fix something on your car in order to get yourself to work to earn your income. And in order to borrow that $100, correct me if I’m wrong, but it’s often around a $15 fee you have to pay.
And if you put that $15 fee on $100 into a percentage, sounds pretty awful. It does sound like you’re being taken advantage of. But if you actually take a step back and say, “I’m coming to someone asking to borrow $100. What is fair to ask them to pay in return in order to fund that?” $15 doesn’t sound that ridiculous. So why are these type of short-term loans constantly being vilified and attacked and attempted to be squeezed out of the financial system as an option for Americans who might be in a financial bind, especially with this record inflation that we’re all dealing with?
Right. Yeah. I mean, the record inflation is causing people to have pay cuts, even though on paper, people are getting pay raises. The inflation is swallowing up and putting negative pay cuts for people. So people are having to make do, they’re getting less for more money. And so the fact that people are going to need potentially these services more and more because of inflation, it’s really a double whammy to hit someone when they’re down. And my parents were on welfare when I was younger. We lived in sheds and tents and motor homes. My father would frequent pawn shops and it’s a similar concept, but he would pawn his wedding ring or he had a guitar, a classical guitar, or some other item that he had that had some value in order to get a little bit of cash. And then there’s a fee exchanged.
And that sometimes was the difference between feeding my seven siblings and I, and not. So if I ever meet Eric Holder someday, I hope I can ask him, “Why did you want my family to starve just so that you could feel good about yourself?” And I’m really glad that you brought up the Operation Choke Point, because I think it really was in some ways a precursor to what we’re seeing now today, flash forward, because that was under the Obama age, ’13, ’12, ’13, ’14, 2014. And now we’re seeing in 2022 and it started last year, I think is when it really accelerated, this woke capitalism. And Operation Choke Point was the nibbling on the outskirts of the economic machine. And now it’s gone full woke and this same idea is coming mainstream to much bigger industries to try to shut people down and to try to ice people out because you have a political agenda and it’s really unfortunate.
Right. And so often it hurts the most vulnerable and it often hurts small businesses. Community banks are another part of this issue that I wanted to ask you about because the left portrays itself as if they are the party of moral high ground fighting big corporations, when really it appears their policies are squeezing out the smaller businesses, community banks, and so forth. And so what is happening? What is the threat that community banks are facing right now?
Yeah, so under the Trump administration, there was a policy called the True Lender Rule. And what it basically did was that it clarified and allowed community banks and credit unions, these pillars of the community that often serve people who could not be banked and operate with a much bigger national bank. And they have those personal relationships in their own hometown. And again, this could be the difference between being participatory in our economy and not. And so the True Lender Rule allowed for technology, fintech, they call it financial technology, fintech, is a huge expectation that consumers have that my bank will be able to have the technology I need, whether it’s an app or a desktop or money transfer, wire transfer, things taking place online that that needs to be happening for your bank, with your bank.
And the True Lender Rule allowed for partnerships between fintechs and these tiny, smaller banks, these community banks, that could not compete with a massive Citibank or a Bank of America. A bank that had a much bigger, they have an entire tech sector, industry or multiple people, whole division of technology within these massive banks and these little guys, they can’t do that. They’re the minnow in the pond. And so to be able to partner with these fintech firms allowed them to reach clientele and to stay open in business. And unfortunately under the Biden administration, the True Lender Rule has been destroyed. It has been taken away in terms of the regulatory understanding that this fintech partnership could happen at the local level. And so it’s certainly something that I would recommend as a policy analyst to bring back.
I know there are people in Congress who are looking at this and they want to bring it back and they want to make it in law as opposed to just a regulatory guidance, because those things can come and go with administration to administration. So again, it’s all about outcome versus intention. I think that’s one of the biggest gaps here. And going back to, I just want to bring up an analogy to our previous conversation on the installment loans, the APR rate, that’s what it is, the interest rate, that if you annualize it, you’re right, it’s like a $15 fee on a $100 loan. If you annualize that over the whole year, that’s triple digits. But nobody ends up paying that because it’s a 14-day loan. And so it’s one and done. So the APR is irrelevant. It’s not actually an annualized because the APR is annualized.
So it’s actually not even sensible to do that. But that’s what the left does to try to twist it and make these loans look much worse than they are. And Thomas Sowell, the famed economist, who we had a book conversation last year about a book biography about him with Jason Riley that’s incredible that I recommend to everybody. But he’s a renowned African American economist and he’s looked at how do we help people on the lower end of the economic scale? And he said, destroying installment lending and payday lending, so called, is not the way to go. And his analogy is great, which is that it’s like a hotel room. If you go to a hotel room and they charge you $150 a night, if you annualize that, what is that over time? I don’t even know the math for that, but times 365 days.
He’s like, $100… And then is that $35,600, it’s price gouging. They’re charging $35,000 to stay in this room. It’s like, no, I’m staying for one night. And it’s not logical. And I think that when people can arm themselves with facts about the rhetoric around these products. And yeah, I don’t want anyone to be taken advantage of or gouging or sharks, none of that. We don’t endorse any of that. But we also don’t endorse people with supposed good intentions having outcomes that end up ruining people’s lives and shoving them further into a black market.
Carrie, when I was reading your policy paper on this issue, I was taken back to Trump’s theme of the forgotten man and woman. Because this is a wonky issue that if you’ve never used any of these short-term loans or even needed to rely on your community bank, ever been underbanked or unbanked, it’s something you probably never thought of. And unfortunately, the vulnerable people who do need to pursue these options are often the exact people… It is thundering at my house, if you hear a big roar in the background. It is often the exact people who don’t have the time to speak out about what’s happening in Congress to their financial system of life. They don’t have time to be contacting their lawmakers and they certainly don’t have the political connections or the money to hire fancy lobbyists to speak up for them.
And so, what your policy paper really is doing is giving them a voice and speaking up for the services that they really do need to participate in our modern day economy. And I do think it’s so unfortunate and so unfair, frankly, that the left gets to claim this moral high ground when they tackle this issue. When in fact, if you speak with the individuals who are using these types of services, they rely on them. And I guess that leads me with the last question I want to ask is where are they to go if lawmakers do squeeze out these options from the marketplace?
Yeah. I mean, that’s exactly the crucial point that they might go to more desperate measures. I mean, really what the left’s answer, what they want to do is they want to actually create a nationalized banking system. So that’s actually the deeper push for what they’re trying to do. So that would be the answer that they want to give to this question. And I think, and we’ve seen no matter where it’s been tried, socialism has always failed. And so a nationalized banking system is going to fail. And so what the answer is, is instead I believe financial literacy and teaching people. I mean, if you look at there’s a survey done and different reports on financial literacy in the states and schools in K through 12 programs, these days we’re going to be teaching five-year-olds about their pronouns instead of teaching the basics of understanding money and understanding savings, things that people can actually use.
If you look at the K through 12 curriculum standards, the mandatory teaching of economics and personal finance let alone, so that’s one step to allow to have the offering of these classes. And then the second step is to mandate accountability in taking the classes and then testing concepts. It’s such a small pool that it’s very disappointing. And so I think that that is something that we should be pushing for from a societal standpoint, educational standpoint, because yeah, we don’t want people living paycheck to paycheck. But sometimes, and quite often actually, these products are used when you’ve fallen on a hard time. Maybe you’re going through a divorce. Maybe you lost your job temporarily. And that is a safety net that has resources available for you. And we don’t want to take that safety net away, but we do want to empower people and educate them and teach them how to get fully into the banking system. Yes, I agree, let’s get them fully banked, but not through socialism.
Absolutely. And that’s especially important to address this issue when we are facing as a country record inflation, high gas prices, central product shortages. I know these are all issues you cover closely. You even testified for IWF recently before Congress on these issues. So Carrie, we are so grateful for your work on this. For everybody listening, you can read more and share, educate yourself on this issue in Carrie’s latest policy focus called Protecting Lending Services for Unbanked Low Income Americans. Carrie, where can everybody follow all of the work that you do?
Thanks, Kelsey. Yeah, just iwf.org, iwv.org. And then I’m on all the socials, @CarrieSheffield, on Instagram, SheffieldCarrie. I’m around. And I have a website, Carriesheffield.com. I have a Substack with monthly updates, so feel free to sign up and we’ll see you there.
Carrie keeps herself busy and we are so grateful that you kept yourself busy today by joining us on this edition of She Thinks podcast. Please support us by sharing it, following on Spotify, iTunes, wherever you get your podcasts, leaving a review. We love to hear from you. And we love your interest on these sometimes wonky topics that you know, like us, are very important to Americans and American society. So on that note have a wonderful week and Beverly will be back with you soon.