Two of the three most talked-about economists with research relevant to the under-banked space will be speaking this week at CFSI's Emerge Conference.
Lisa Servon, a professor of urban policy at the New School, will talk about the things she saw when she worked part-time
at a check cashing store in the Bronx. A day later the audience will have a chance to hear from Eldar Shafir, co-author of "Scarcity: Why Having Too Little Means So Much," on the variety of behavioral responses made by the poor in response to the pressures brought about by the forces of poverty.
Who's the third a la mode economist? In opinion, that honor goes to Thomas Piketty. Just missing the cut: Daniel Kahneman, Malcolm Gladwell, and Dan Ariely.
I would expect these kinds of names at TED or Davos. I am used to lots of PowerPoints from well-informed wonks and really strong Prezis from captains of industry. This is quite an unusual setting for the kinds of thought makers that make the talk shows and write in the New Yorker.
Servon was outwardly optimistic about the value proposition offered at her check cashing window. She said that check cashing is a relationship business where the pain of high pricing is more than made up for by genuine customer service and cost certainty. But while it is rare to hear that check cashing is preferable to a network-branded transaction account, it is at least a fairly transparent system that leaves its users without any outstanding debt obligations. People know the cost of cashing a check. There are no surprises at RiteCheck. As well, no one gets caught in a debt trap because they paid $5 to cash a check.
But payday lending is much more problematic. By addressing the issue in the New Yorker, Servon has entered into difficult turf. In her piece, she acknowledges that claims made by some that payday loans meet a need that is otherwise unmet. But she also recognizes the downside. When she worked the phones at the Virginia Poverty Law Center's Predatory Loan Help Hotline, she heard stories of people who were caught in a number of traps - some legal and some not. To me, that signals that there could be some nuance and perhaps some variation from the known narratives in her Thursday keynote.
I already see that she will step away from the traditional advocacy approach to payday lending. In her New Yorker piece, Servon chided consumer advocates for trying to "focus almost exclusively on regulation of the industry, rather than on the conditions that lead people to seek out small, expensive loans in the first place."
Her analysis needs to go further. I'll agree that she is right about the underlying genesis of the demand. Too many people make too little money; the paycheck runs out before the month ends. But that is where the question begins. Is it better, given that many people are living on the edge, to continue to offer a product that ultimately sets many of them back even further?
In some ways, Shafir's ideas contradict those of Servon. Shafir seems to be saying that people from all walks of life often make irrational choices. Choice is fine at first glance, in other words, but the empirical evidence shows that it doesn't always work out so well. To the extent that Servon leaves some space for use by consumers of high-cost loans - even if they use big data to underwrite - then the two rub against each other. But again, that is why people should come and hear her thoughts.
Spent: Looking for Change
Tonight, Davis Guggenheim will premiere his new movie at the Hammer Museum in Los Angeles. Guggenheim is behind several well-known documentary films, including "An Inconvenient Truth," "It Might Get Loud," and "Waiting for 'Superman.'"
"For many people," it begins, "banking is broken."
The movie features Servon, as well as Arjan Schutte of Core Innovation Capital. The trailer is here: