New York city council considering protections for people without credit, but we also need solutions
WOLE COAXUM | 2/21/2019, 11:07 a.m.
On Thursday, Feb. 14, the New York city council considered several legislative proposals to address cashless store policies. Council Member Richie Torres has sponsored legislation to prohibit retailers from not accepting cash, which would protect consumers who don’t have access to credit from discrimination. Another piece of legislation, sponsored by Council Member Fernando Cabrera, would require establishments that do not accept cash to clearly post signage of their cashless policy at all customer entrances. New Jersey recently passed legislation prohibiting cashless store policies, which is currently waiting to be signed into law by Governor Phil Murphy, and in Philadelphia they are also considering enacting a similar ban on cashless stores.
In 2015, the Consumer Financial Protection Bureau reported that 45 million American consumers do not have credit scores—almost half of all consumers living in low-income communities. In fact, 26 million of those were described as “credit invisibles,” meaning that there was zero credit history with national credit reporting agencies like Equifax or Experian.
How could someone be credit invisible? Consider an individual who lives in subsidized, low- to moderate-income housing and pays $500 per month in rent. This person may be a single parent, who receives their weekly paycheck every Friday and goes to a check casher to get access to cash immediately. With that cash, rent gets paid with a money order, groceries are bought at the bodega, and then it is time to choose. Does the electric bill get paid, or is time added to their pre-paid cellphone plan?
All of these are cash transactions that do not help build a person’s credit. Now there are very disastrous outcomes if these bills aren’t paid, but in most instances, their responsible behaviors aren’t building their credit. According to the most recent 2017 FDIC study, 8 percent of people who live in the tristate area do not have a bank account and live solely in a cash economy environment.
Living without a credit score means living without the safety net of a credit card. In 2017, the Federal Reserve confirmed that 40 percent of adults could not cover an unexpected expense of $400 without selling something or borrowing money. Further, credit scores are used in a variety of other important life contexts and can potentially impact hiring, student loan payments and other issues.
Fortunately, for those struggling to build credit, your monthly rent check can help provide a solution. In the U.S., over one-third of heads of household rent their homes, but according to FICO, less than 1 percent of credit files include information on rental payments. Because landlords tend not to report to credit bureaus, even the most diligent tenants’ payments typically go unnoticed. As such, a powerful and abundant source of credit data is currently going untapped.
Overcoming this gap between payments and reporting holds the potential for tangible, positive impact on the credit invisible phenomenon. By using new platforms, users can submit past and future rental payments, which are then reported to Equifax and TransUnion. By serving as the conduit between renters and credit agencies, platforms like financial tech startup MoCaFi works with landlords and helps bolster credit through everyday financial activity. Of the $5 million in rental payments processed by MoCaFi, 40 percent of payments were made by users who would have paid their rent to their landlord in cash.
Cashless stores or no, a lack of credit will continue to prevent millions of Americans from achieving financial stability. With good credit, we can qualify for low-interest loans, new credit cards, higher borrowing limits, easier rental approvals and lower insurance rates, but for the credit invisible, these opportunities simply are not accessible. With these new solutions, the good news is, your rent check might just be the first step to a more secure financial future.
Wole Coaxum is the founder and chief executive officer of the financial literacy organization, Mobility Capital Finance (“MoCaFi”).