In June of 2013, we started laying the groundwork for a piece of legislation that would change the way the state of California thinks about credit-building. Just last week, Governor Jerry Brown signed our bill, SB 896, into law. This is momentous for Mission Asset Fund, but an even bigger moment for the asset-building field. Nonprofit organizations and advocates throughout the state joined SF Treasurer Jose Cisneros and CA Controller John Chiang in support of the bill early on. The bill received unanimous bipartisan support throughout the legislative process, receiving zero votes in opposition.
The passage of SB 896 makes California the first state to regulate and recognize credit-building as a vehicle for good. With this law, credit-building becomes the next frontier for asset-based policy.
Our nation has a long history of legislating policies that help low-income families build assets – from home ownership and investment tax benefits to Individual Retirement Accounts (IRAs) and Individual Development Account (IDA). But until now, credit-building has been largely missing from the discourse around poverty alleviation.
What the 90’s taught us about the need to accumulate savings among low-income households was important; liquid savings is now widely understood to be one of many indicators of the financial resilience of a hardworking family. But when we started Mission Asset Fund, we quickly understood that it would take more than savings to build financial capability in the long run. During the 2007-2009 recession, in a time when mortgages went underwater and personal debt for the lowest income Americans soared, our nation learned even more about credit and debt. 64 million Americans don’t have credit scores right now. That means they don’t have equitable access to things like low-cost bank accounts or prime-rate loans. In fact, many of them can’t even qualify for IDAs, affordable apartments or sometimes even jobs. Their choices are limited to fringe and predatory financial services that entrap them in a cycle of high cost debt.
That’s why our vision was to create a new law that – for the first time – would establish and regulate innovative credit-building approaches so that nonprofits in California could band together to change the financial marketplace for the better. Key elements of SB 896 include:
- The State of California declares that nonprofit organizations have an important role to play in helping individuals obtain access to affordable, credit-building loans
- A licensing exemption within the California Finance Lenders Law (CFLL) for 501c3 nonprofits facilitating zero-interest loans of up to $2,500
- Nonprofit organizations will be able to apply for exemption to provide zero-interest loans, as long as they meet other criteria like provide credit education, report to national credit agencies, open books to the Department of Business Oversight upon request, and annually report lending data to the DBO
- Recognition of partnerships between nonprofits as an effective strategic way to scale reach and impact throughout the state
SB896 provides regulatory assurance to programs like MAF’s Lending Circles, a social loan program which has provided over $3 million in zero-interest loans to clients nationwide. We are extremely grateful that Governor Brown recognized the enormous potential of the nonprofit sector in helping millions of underserved Californians realize their true economic potential. The enactment of SB896 means that more nonprofits will work with low-income Californians by providing them access to responsible loans, loans that will set them up for success and set them on a path to financial security.
California is now the first state to recognize credit-building loans as an important community-based solution to creating access for the underbanked.