Credit Deserts: The Absence of Low-Cost Credit in Low-Income Communities

 

2012: In the wake of the recent recession, a growing debt crisis is facing low-income families. Supported by promising results from a pilot research project, this report calls for better consumer disclosure on small dollar loans.

Mission Asset Fund’s Financial Facts label is a first step toward protecting individuals from a cycle of poverty and high-cost debt. Without a credit history, a person is invisible to the mainstream U.S. financial system and must turn to alternative lenders, often settling for loans with high costs and predatory terms.

This report presents MAF's Financial Facts label as a model for communicating loan terms in a clear, transparent, and recognizable format. The time is ripe to introduce a new tool for sifting through potential hidden fees, interest rates and other costs associated with financial products offered by lenders.

Modeled on the Nutritional Facts label, the Financial Facts label makes loan features clear: total amount, number and amount of monthly payments and fees, annual percentage rate, late payments, and total cost.

Just as the Nutritional Facts label offers a standardized framework for consumers to evaluate food content according to the percentage of daily recommended calorie intake, the Financial Facts label uses a percentage of monthly debt budget to help consumers assess loan affordability.