Consumers deserve dignity across every financial services touchpoint in a rapidly changing world.
For the last few years, the financial services industry has been through a roller coaster of technological and social change. But consumers have been on that same roller coaster, and it has changed what they expect from credit unions.
To shine a light on people’s experiences around debt, savings, innovation, data, and work, Filene brought together a diverse group of leading experts in these topics for its signature annual event, big.bright.minds.
The resounding message was that no matter what the future brings, credit unions that treat their customers with dignity across every touchpoint will serve their members best.
Bad debt can feel like a crushing weight, but it’s not just the amount of money that can make debtors feel like they’re in a financial prison.
Bad debt has far-reaching consequences
Professor Frederick Wherry, professor of sociology at Princeton University, believes that the real burden of bad debt comes from the loss of dignity, opportunity, and hope for the future.
"One of the things I wanted to demonstrate is the extent to which people care about how they’re treated; both when they are acquiring debt and when they carry it. One of the things that happens is that the moment in which the debt is being repaid, or worse collected, this is when the rules of respect seem to be suspended."
In the first keynote address at big.bright.minds. 2019, Wherry shared with credit union leaders how important it is to consider the consumer experience of debt.
“When you’re in a lot of debt, people feel they can treat you any way they like,” Wherry says.
A bad credit score can make it hard to get a job, or a place to live, and a study published in the journal Socius found that the impact is worse if you’re a non-White person in America. Hiring managers in the study were more reluctant to call back a Black candidate with bad credit than a White candidate with the same bad credit.
Financial education is not the solution
Wherry cautions credit unions not to assume that people get into bad debt simply because they don’t have enough financial education to know better.
“Financial service providers are always trying to teach people to do something else. We should be teaching ourselves how to do something else.”
“Knowledge is power, but there are some things education will not do,” he says. “It’s not what you know, it’s who you care about.”
In Wherry’s research, one of the most common reasons people took on bad debt was because of some kind of family emergency like an unexpected death.
“They looked at me with frustration and said, look, it was a funeral,” Wherry says.
Debt collection causes unnecessary pain
Wherry also shared the results of a study on complaints submitted to the Consumer Financial Protection Bureau that revealed the hidden costs of debt on family relationships and employment.
Complaints mentioned that debt collectors were harassing family members who had co-signed for loans. Borrowers were often called at
"The whole day was about how you come at it as far as your members are concerned and looking at what the member experience is, because often we think well, we are the experts, we know…but how often do we ask our members, ‘tell me your pain points.’”
CEO of Capital Credit Union in Edinborough
work, and one complaint said a borrower’s boss was contacted on his personal cellphone. And the cumulative emotional impact of these practices led to hopelessness for many.
Borrowers care most about how they are treated when paying back their debts, Wherry says. They want to be treated with respect, dignity, and transparency.
Credit unions need to evaluate the customer experience around debt at every step of the process and look for ways to eliminate friction and pain for the borrower, Wherry says.
“One of the problems with financial service providers is we’re always trying to teach people to do something else,” Wherry says. “We should be teaching ourselves how to do something else.”
DEBT DAY-AWAY: Common Cents Lab
Participants toured the Common Cents Lab, a behavioral economics research institute at Duke University, which runs experiments with credit unions and other financial services providers to help people translate intention into action and become happier, healthier, and wealthier. Researchers led small group exercises to design experiments that would test whether a particular intervention would compensate for people’s cognitive biases in accessing and consuming financial services.
"Knowledge, while it is extremely important, isn’t everything. And in fact rarely leads to behavior changes by itself."
Taylor C. Nelms
Filene Research Institute
Small changes can make a big impact on consumer behavior. Shifting from opt-out to opt-in defaults, for example, can dramatically boost retirement program enrollment. Offering flexibility in when, how, and where members engage with the credit union to do their “financial chores” is likely to improve member satisfaction and loyalty. And by regularly revisiting empathy maps and member journeys across all offerings, a credit union can uncover easily fixed but problematic processes that may be lowering satisfaction and driving members to seek out other financial service options.
Report No. 498
Consumers are heading into a retirement crisis, but credit unions can help.
Few adults feel prepared for retirement
Lowell Ricketts, an analyst with the Federal Reserve Bank of St. Louis, points to the bleak facts:
With pensions becoming rarer every year, and social security projected to run out of funds by the year 2035, many Americans are facing the prospect of living entirely off of their personal savings in retirement.
“You can’t achieve long-term stability without short-term stability."
Federal Reserve Bank of St. Louis
According to the 2018 Survey of Household Economics, only 36 percent of non-retired adults think they’re on track with their retirement savings plan. And a quarter of Americans have no retirement savings or pension whatsoever.
Retirement readiness varies greatly with race and ethnicity, Ricketts says. About two-thirds of white households have any kind of retirement accounts — with as little as $1 saved. In nonwhite households, just over one-third have any accounts. And the typical white family has about 2.6 times as much stashed away in those accounts as nonwhite families do.
Given the shaky state of savings in America, homeownership is becoming a more important option for funding retirement. But homeownership access also mirrors the gap in other retirement savings as a result of explicit discrimination through policies such as redlining, predatory lending practices, and unfair appraisals.
Financial innovations and political reforms can help close the retirement gap
Ricketts offers a few financial innovations, best practices, and political reforms that could soften the blow of the impending retirement crisis.
First, financial institutions and employers should work to influence consumer behavior around retirement accounts. Instead of the default option being to opt-out, people should be auto-enrolled into the recommended contribution rate. And since the average worker will have more jobs during their career than past generations, account rollover needs to become a seamless experience. One trend that could help with that is state-sponsored retirement plans, which provide a state-run retirement plan to workers whose employers don’t offer one.
"Credit unions might be able to take some of the innovations they’ve seen and apply it to their own retirement packages for their employees and lead in this movement toward both short-term and long-term stability."
Federal Reserve Bank of St. Louis
Second, the federal government must find the political will to change the trajectory of the social security program, whether that means raising taxes in some form or cutting expenses by changing the benefits formula or cost-of-living-adjustments.
Third, credit unions should look into promoting sidecar accounts and reverse mortgages. With a sidecar account, someone can begin contributing to an emergency fund, which has no penalties for removing funds, and when the emergency fund reaches a safe balance, the contributions automatically switch into a retirement account.
Reverse mortgages have recently become a more viable option for most homeowners thanks to changes to the structure, Ricketts says. If you can make your property tax and insurance payments, then a reverse mortgage can provide much-needed income to retirees.
“It’s a great deal if you live longer than expected,” Ricketts says. “And that’s a pretty good bet to make.”
SAVINGS DAY-AWAY: Self-Help Credit Union
Self-Help Credit Union leaders took big.bright.minds. participants on a tour of Self-Help's real estate development projects in Durham, North Carolina including projects in Walltown, Kent Corner, and Willard Street. They discussed how Self-Help’s organizational structure — an amalgamation of a state-chartered credit union, a federally chartered credit union, a 501(c)(3) CDFI loan/venture fund and a policy research organization — enables tremendous community impact.
Participants expanded their idea of the role credit unions can play in community and real estate development. Self-Help shared five tips for credit unions considering real estate development:
- Start small and consolidate wins.
- Build your institution’s willingness to take on risk.
- Find partners to help supplement your expertise.
- Know what's possible within NCUA rules and regulations.
- Be patient. Real estate development is a long-term process that takes time to unfold.
Report No. 498
Picture an artisan in the developing world.
If you’re picturing a highly-skilled person working independently at a craft that has been passed down through generations, you have a nostalgic view of what it means to be an artisan, says Rudi Colloredo-Mansfeld, an anthropologist at the University of North Carolina who has spent decades observing indigenous artisans in South America.
Artisan communities balance competition with cooperation in pursuit of scale
Modern artisan communities are both intensely competitive and cooperative. And by studying modern artisans, credit unions can design better financial services for artisans working in a global economy, and learn a lot about creativity, hustle, and adaptability.
Filene’s George Hofheimer interviews Professor Rudi Colloredo-Mansfeld following his speech about innovation in artisan communities.
Counter to the notion of the handmade, small-batch “artisan” stereotype, modern artisans take a lot of pride in succeeding in business, and that usually means scaling up production.
“It’s not just about the craft, it’s about being skilled at moneymaking,” Colloredo-Mansfeld says.
Artisans are in constant competition with the neighboring market stall a few feet away, so they’re always looking for ways to distinguish themselves through innovation. But that urge is also tempered by the lack of intellectual property protection. There’s a short window of time after you introduce something new before someone else has copied it, Colloredo-Mansfeld says.
This is one reason why artisans are always looking for ways to reach a global audience — they want some distance from their competitors.
But artisans are also willing to work together to protect themselves from competition from other communities.
“You see towns getting cultural trademarks for the whole town,” Colloredo-Mansfeld says. “If you build an identity of a place that’s different from other places, then you can exclude rivals.”
Sense of place can be an economic catalyst
For credit unions, Colloredo-Mansfeld offers a few insights.
"You still need to innovate but you are going to always be that member of the community where your innovations will matter to the other credit unions."
University of North Carolina
First, especially if you serve a rural community, recognize the value of creating a cultural and geographical identity around a product. Think of Kentucky bourbon, North Carolina pottery, and Wisconsin cheese. And once a place has an identity, find global connections that can help artisans succeed by tapping into a larger market.
“Do not romanticize small when people want to get big,” Colloredo-Mansfeld says. “Part of the skill of being an artisan is to grow it.”
Second, realize that the competition in artisan communities typically creates a winner-take-all economy, but that’s not necessarily a bad thing. Top producers can exploit hidden advantages and limit others’ opportunities, but they also prop up the reputation of artisan economies, bringing more business to all.
INNOVATION DAY-AWAY: Black Wall Street
Aya Shabu, of Whistle Stop Tours took 25 credit union leaders on a tour of the historic Hayti Heritage Center and through “Black Wall Street” in downtown Durham. On this tour they learned about the proud history of Black Wall Street and efforts by Black entrepreneurs today to preserve the proud legacy of the area.
"One thing that was talked about was the notion of reinvesting in the community and that one of the powers of Black Wall Street was that a portion of their proceeds went back. Fast forward to today and there are African American entrepreneurs back on Parish Street."
Filene Research Institute
Credit unions can learn many lessons from the history and legacy of Black Wall Street. As businesses heavily invested in the communities they serve, it is important that credit unions honor the history of those places. We must not sugarcoat the troubled times and hard lessons of the past as we strike a path forward. Finally, it is important to give back to the communities we serve. Reinvestment is financial, but it is also created by active community participation and ongoing engagement.
Report No. 498
The use of automation in government social services is revealing how algorithms amplify biases and do harm to the most vulnerable members of society.
Your data or your life
In a perfect world — one that affirmed the dignity of all people — data collection in public services could be a great thing, says Virginia Eubanks, Associate Professor of Political Science at the University of Albany, SUNY and author of the book Automating Inequality.
A one-stop-shop for all public services, where you put in your information once and get matched with every resource that is available based on your needs, would be great.
“But that’s not the world we live in,” she says.
As Eubanks has seen, in the U.S., government agencies frequently coerce vulnerable communities to share personal data in order to access public resources and then use those data to restrict their freedom and their access to resources.
"When something goes wrong and we need to talk to a member about collections, how do we do it in a way that isn’t shaming and how do we do it in a way that helps build the relationship. How do we build empathetic services. To move from transactional services to empathetic services that builds those relationships."
Constellation Digital Partners
The problem, Eubanks says, comes from the starting assumption that there’s not enough to go around. When agencies build automated systems to distribute resources, they inevitably bake this assumption of austerity into the algorithms.
“These tools are often rationalized and explained as tools to combat bias in public services, but they tend to create feedback loops of oppression,” Eubanks says. “If you build to be objective and neutral, you’re building for the status quo.”
Automation creates unintended consequences
Eubanks saw many examples of harmful results from bringing automation into social services.
An Indiana system designed to automate welfare services ended up denying 1 million applications in the first three years of the experiment, a 54 percent increase from three years prior. LA County uses an invasive survey to rank unhoused people in the county, in an attempt to match them with the most appropriate available housing resource. Their data enters a system that law enforcement can access without a warrant, and then only about half of applicants get any kind of assistance.
Pennsylvania’s Alleghany County has an algorithm for predicting child mistreatment, which draws on a variety of data points that might make parents reluctant to request public services for fear of raising their risk score.
Eubanks explained that this system at times creates a situation where parents weigh the costs of having food on the table against maintaining a good risk score.
Zombie debt collection violates due process
Eubanks also spoke about how public agencies in the U.S. are using automated tools to collect what she calls “government zombie debts” based on decades’ old records of alleged overpayment of benefits, which the debtors have no real ability to challenge.
"I wanted to take the opportunity to talk about something that should be on the radar of credit unions and is beginning to be there, which is predatory digital debt collection."
University of Albany, SUNY
“The alleged overpayments are often so old that neither the state nor family has any evidence the debt actually exists,” Eubanks says.
Eubanks pointed out that taking humans out of these systems often resulted in worse outcomes for the communities who need these resources.
“Some of the most difficult challenges we face as a nation get outsourced to a computer program, which allows us to ignore our responsibility for caring for each other,” she says.
DATA DAY-AWAY: IBM
Leaders from IBM hosted nearly 50 credit union leaders at their campus Executive Briefing Center in Research Triangle Park. IBM briefed participants on several projects, including research in the payments space in China, an autonomous ship that is launching next September to collect data on the ocean 24/7, and a weather company that analyzes more than 10 terabytes of data each day.
Data may be the world’s most valuable resource. It is important to harness the data you have but remember to put your members' needs and privacy first. The innovation methodology IBM employs is based on human-centered design, which puts the end-user first. And follow IBM’s example to never stop solving problems and creating new solutions – IBM was granted 9,100 patents in 2018 alone.
Report No. 498
The gig economy — brought on by the tech innovations of the last decade — once presented a utopian future of universal entrepreneurship. Every worker would have the freedom to set their own hours, make decisions in their best interest, and make more money than ever before.
But the reality that is unfolding is much more dystopian, says Alex Rosenblat, a Research Lead at the Data & Society Research Institute and author of Uberland.
Tech companies use rhetoric to avoid regulation
Using Uber as a case study for the gig economy as a whole, Rosenblat shared with the audience how tech companies use rhetoric to dodge regulations that apply to their competitors, and how their tactics are redefining the future of work.
“Technology has had a reputation for being neutral and objective. My research has shown that it is not.”
Data & Society Research Institute
Since it launched in 2009, Uber has been using deceptive practices and manipulative app designs to attract drivers and control their behaviors, Rosenblat says.
When Uber tried to enter the Toronto market, it promised to create 8,000 jobs, as if its drivers were the equivalent of full-time employees. But Uber classifies its drivers as either independent contractors or as entrepreneurs who consume its lead-generating service to find passengers.
A faceless boss can watch your every move
In the early years, Uber advertised that drivers could earn up to $90,000 in New York City or make $15 an hour in Dallas. Drivers who signed on expecting more autonomy in their work soon found their every move being monitored by the app, with each decision resulting in either a reward or a punishment by the app.
And if drivers don’t follow these increasingly strict rules for behavior, you can get deactivated, which, Rosenblat says, “is a tech word for suspended or fired.”
With Uber’s refusal to acknowledge its drivers as employees, regulators are turning to consumer protections, rather than labor protections, to hold them accountable.
Uber is in an asymmetrical relationship with its drivers
"Uber is a very vivid example of what the future of work might look like. What if my job is transformed in a similar way to taxi drivers?"
Filene Research Institute
And, with its wily rhetoric, Uber is dodging another set of laws — antitrust laws.
“Uber is either misclassifying its workers, or it’s a giant price-fixing conspirator setting the rates for small businesses,” Rosenblat says.
In fact, Uber drivers are prohibited from collectively bargaining over rates, because that would violate antitrust laws around collusion, yet Uber has skated past antitrust regulators without a hiccup for doing essentially the same thing.
Rosenblat offers one quick takeaway for credit unions who anticipate serving more members of the gig economy in the future: Help them develop basic business skills.
“A lot of people in the gig economy are willing to run errands, but they’re not equipped to run a business,” Rosenblat says. “When I asked drivers how much they were earning, they repeated the figures from the advertisements, because they don’t know how to calculate their take-home pay.”
WORK DAY-AWAY: Startup Hubs
40 credit union leaders explored two innovative workspaces, ReCity Network, a co-working space focused on social impact, and American Underground, a space for inspiration, connections, and support for fledgling organizations.
Co-working spaces can provide a catalyst for innovation and impact, and credit unions can take note of how they use their physical spaces to build communities focused on a shared purpose, as well as to offer meaningful programming to engage specific types of people. One crucial piece of the puzzle is the community manager, who helps connect members and stimulate opportunities to collaborate.
Report No. 498