• Carroll's Corner article for February


  • By Jennifer Carroll, Former Lieutenant Governor of Florida

    February 2, 2018 | Opinion-Sun Sentinel


    Florida's middle class is in trouble. Over 200,000 households in Central Florida are on the brink of bankruptcy or eviction. Two in three residents stress out about their finances.

    The panic over bills isn't unique to Florida, of course. Nearly half of all Americans say they have so little savings, that, in an emergency, they wouldn't be able to come up with $400 without selling personal property or borrowing money.

    Many have no safe source to borrow from. Americans with poor, or "subprime," credit scores often don't qualify for a bank loan. Until recently, their only options have been predatory lenders who charge ridiculously high interest rates.

    In the past few years, a new, more affordable option has emerged. Community banks have partnered with technology firms to extend affordable loans to folks who otherwise would have to rely on usurious lenders. These partnerships offer financial security to millions of people. But some courts have used a dubious interpretation of banking laws to crack down on the partnerships.

    By clarifying that these partnerships are legal, Congress could improve the lives of millions of Floridians.

    After decades of slow wage growth and the lingering effects of the Great Recession, the middle class finds itself in a precarious position. About 160 million Americans have little or no savings and subprime credit scores.

    In the modern economy, it's hard to succeed without a good credit score. Applying to move into an apartment building? The landlord runs a credit check. Want insurance for your car? Your rate may depend on your score. Need a loan to start a new business? You can't get one without good credit.

    Different lenders have different standards, but the general rule is this: if your score is over 700, you're good to go — but if you fall below that, you're going to run into problems. In Florida, the average credit score is 669. Nearly a fifth of our population has declining credit.

    Young people in particular often have poor credit — or no scores at all. College students who only live with their parents or in dorms, for example, have little opportunity to build their credit history. After graduating, they often struggle financially.

    Part of the problem stems from how we regulate financial institutions. Following the 2008 economic crisis, federal legislators cracked down on subprime lending. But the well-intentioned laws they passed also had unexpected consequences. Now, many small community banks aren't able to lend to Americans with lower credit scores. In the past decade, U.S. banks have reduced credit to "non-prime" customers by $142 billion.

    New technology is the key to solving this credit predicament.

    Fintech, or financial technology, firms are now working with banks to experiment with low-risk loan and repayment structures. Mining thousands of data points from the record of each potential borrower, they can calculate with considerable precision who is a good credit risk and who isn't — giving many Americans with subprime credit scores new hope.

    But to be able to bring about system-wide change, financial technology firms will need support from lawmakers.

    Rather than treating financial technology firms as expediters of good lending by banks, some recent court rulings have classified them as the originators of the loans — in other words, as de facto banks themselves. These "true lender" rulings, and the regulatory burdens they entail, could prevent banks and fintech firms from helping the Floridians most in need of affordable loans.

    Florida lawmakers will soon have a chance to clarify banking laws and lift the regulatory burden on these partnerships. Rep. Alcee L. Hastings has co-sponsored the Modernizing Credit Opportunities Act, which would allow community banks to work with fintech firms to offer low-interest loans to hardworking people with subprime scores or no score from traditional credit rating agencies.

    Rep. Dennis Ross (R-FL) and the rest of Florida's congressional delegation should lend their support to the bill — improving the lives of middle-class Floridians needn't be a partisan issue.

    By working with fintech firms, community banks can offer financial security to millions of Floridians. It's time for Congress to lend these lenders a hand.

    Jennifer Carroll is a former minority business owner and retired U.S. Navy officer who served as the 18th Lieutenant Governor of Florida.

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