Asset Development and Financial Inclusion Glossary

January 29th, 2013

The purpose of this Glossary is to provide and share language around asset development and financial inclusion. This Glossary defines terms essential for understanding and promoting safe and affordable financial products and services.

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Alternative Financial Services (AFS)
Alternative Financial Services (AFS) are financial services offered by providers that operate outside of federally insured banks and thrifts. Examples of AFS providers include check-cashing outlets, money transmitters, payday lenders, pawnshops, and rent-to-own stores.  See also: Check Cashing, Payday Loan, Predatory Lending, Rent-to-own

Annual Percentage Rate
Annual Percentage Rate (APR)  refers to the percentage of a loan’s principal that would be paid in finance charges if the loan were carried for one year and includes both interest costs and fees charged on a loan. 
See also: Finance Charge, Interest, Principal

Assets
Assets are items of value. Examples of assets include interest-earning assets, stocks and mutual funds shares, real estate equity (own homes, rental property, vacation homes and land holdings), business equity, and motor vehicles.  See also: Asset Poverty Rate, Equity

Asset Poverty Rate
Asset poverty rate refers to the percentage of households without sufficient net worth to live at the poverty level for three months without an income.  See also: Assets, Net Worth

Bankruptcy
Bankruptcy describes the legal status of an individual who cannot repay the debts owed to creditors.

Car Title Loan
A car title loan is a short-term loan secured by a borrower’s car title. A typical car title loan has a triple-digit annual interest rate, requires repayment within one month, and is made for much less than the value of the car. Many borrowers who cannot afford to pay off their loans repeatedly extend them for additional fees.  
See also: Interest

Check Cashing
Check cashing is a service offered by alternative financial service providers to people who do not have access to mainstream banking services.  See also: Alternative Financial Services

Children’s Savings Accounts (CSAs)
Children’s Savings Accounts (CSAs), or Children’s Development Accounts, provide children with tax-favored, investment accounts that allow their families to save for financing higher education, starting a small business, buying a home or funding retirement.

Collateral
Collateral is an item of value that a lender can take as compensation if a borrower fails to repay a loan. Borrowers generally are required to secure a loan with personal property as collateral.

Community Development Credit Unions (CDCUs)
Community Development Credit Unions (CDCUs) are credit unions with a special mission of serving low-income and minority communities beyond the reach of banks and mainstream credit unions.

Community Development Financial Institutions (CDFIs)
Community Development Financial Institutions (CDFIs) are specialized financial institutions that work in market niches that are undeserved by traditional financial institutions. CDFIs provide a unique range of financial products and services in economically distressed target markets and include regulated institutions such as community development banks and credit unions, and non-regulated institutions such as loan and venture capital funds.

Community Reinvestment Act (CRA)
The Community Reinvestment Act (CRA), enacted by Congress in 1977, is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound banking operations.

Credit History
Credit history refers to a borrower’s record of various debts (including credit cards and other consumer debt) and whether payments were timely. Lenders examine borrowers’ credit histories to help determine their loan qualifications and the terms of the loan.

Debt authorization
Debt authorization refers to the permission given to an institution to debit an account-holder’s checking account for payment.

Delinquent Mortgage Loans
Delinquent mortgage loans are mortgage loans with payments 90 days or more past due.

Equity
Equity refers to an owner’s value in an asset or group of assets after all debts associated with the asset(s) are paid off.   See also: Assets

Extreme Asset Poverty Rate
Extreme asset poverty rate refers to the percentage of households that have zero or negative net worth.  
See also: Assets, Asset Poverty Rate, Net Worth

Federal Deposit Insurance Corporation (FDIC)
The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by Congress in 1933 to maintain financial stability and public confidence in the nation’s banking system. The agency insures deposits in banks and thrift institutions for up to $100,000 and also directly examines and supervises about 5,300 banks and savings banks, more than half of the institutions in the United States banking system.

Federal Reserve Board (Fed)
The Federal Reserve Board (Fed) is the central bank of the United States. It was created by Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. Its central agency conducts U.S. monetary policy, and its 12 regional banks support and regulate commercial banks and thrifts.

Finance Charge
A finance charge is the fee charged for receiving credit, usually in the form of interest.  See also: Interest

Financial Inclusion
Financial inclusion describes a variety public and private efforts aimed at bringing underserved consumers into the financial mainstream.

Foreclosure
Foreclosure describes the legal action that removes property from a homeowner, usually because of failure to make payments or seriously delinquent payments.  See also: Delinquent Mortgage Loans

Fully Banked
Fully banked refers to the percentage of households that have a checking or a savings account and do not use alternative financial services.  See also: Alternative Financial Services

High-Cost Mortgage Loans
High-cost mortgage loans are mortgage loans with interest rates and/or points and fees that are significantly above competitively priced loans, as defined by law.  See also: Interest

Income Poverty Rate
Income poverty rate refers to the percentage of households with income below the federal poverty threshold.

Individual Development Accounts (IDAs)
Individual Development Accounts (IDAs) are matched savings accounts that help people with modest means to save toward purchasing a home, pursuing post-secondary education, or starting or expanding a small business.  See also: Assets

Interest
Interest describes the fee charged by lenders for extending credit, usually a percentage of the loan amount. Even a small difference in an interest rate can make a big difference in how much a borrower pays over time. Responsible lenders adjust interest rates according to their level of risk in a loan.

Liabilities
Liabilities are existing debts or obligations of a particular entity. Examples of liabilities include debts secured by any asset, credit card or store bills, bank loans and other unsecured debts.  See also: Assets

Liquid Assets
Liquid assets are assets that are held in cash or can be liquidated quickly. Examples of liquid assets include bank accounts and other interest-earning assets, in addition to equity in stocks, mutual funds and retirement accounts. Liquid assets exclude equity in businesses, vehicles, homes and other real estate.   
See also: Equity, Liquid Asset Poverty Rate

Liquid Asset Poverty Rate
Liquid asset poverty rate refers to the percentage of households without sufficient liquid assets to live at the poverty level for three months in the absence of income.  See also: Liquid Assets

Microenterprise Ownership Rate
Microenterprise ownership rate refers to the total number of firms with 0-4 employees and non-employer firms as a percentage of people in the labor force.

Net Worth
Net worth equals the sum of assets attributable to any individual 15 years and older in a household minus any liabilities. Net worth is a basic indicator of wealth.  See also: Assets, Liabilities

Overdraft Loan
An overdraft loan is a form of high-cost, short-term credit, wherein financial institutions cover their customers’ overdraft when they have a negative balance, and then charge them a fee. These loans have been exempted from interest rate disclosure requirements and can contribute to a devastating cycle of debt.  
See also: Interest, Short-term Credit

Payday Loan
A payday loan is marketed as a cash advance on the borrower’s next paycheck. The terms are typically as follows: a loan amount of about $300, a two-week term, and a fee of at least $15 per $100 borrowed, which amounts to an annual percentage rate of about 400 percent. The borrower’s personal check or debt authorization is held as collateral. Most payday borrowers get caught in a debt trap, unable to pay off the loan in the two-week term, and are so compelled to avoid default by paying repeated high fees for no new money.  See also: Annual Percentage Rate, Collateral, Debt Authorization, Predatory Lending

Predatory Lending
Predatory lending is a term for a variety of lending practices that strip wealth or income from borrowers. Predatory loans typically are much more expensive than justified by the risk associated with the loan. Characteristics of predatory loans may include, but are not limited to, excessive or hidden fees, charges for unnecessary products, high interest rates, terms designed to trap borrowers in debt, and refinances that do not provide any net benefit to the borrower.  See also: Interest, Payday Loan, Refinance

Principal
Principal refers to the original balance of money lent, excluding interest. Principal also refers to the remaining balance of a loan, excluding interest.  See also: Interest

Refinance
Refinance refers to the payoff of an existing loan with a new loan using the same property as security. Homeowners often request refinances to get cash drawn from existing home equity or to obtain a new mortgage with a better interest rate and/or payment terms. Most predatory mortgage lending occurs among refinances in the subprime market.  See also: Equity, Interest, Predatory Lending, Subprime Lending

Refund Anticipation Loan
A refund anticipation loan is a short-term loan secured by the taxpayer’s expected tax refund, offered at interest rates of up to 700 percent.
See also: Interest

Rent-to-own
Rent-to-own companies “rent” merchandise to a consumer for a stated period after which the consumer owns the merchandise. A consumer would pay over four times the value of the merchandise under a typical contract. The company is not required to disclose interest rates, although the transaction is much like a loan in that the company may levy unlimited finance charges for late payments, and may repossess the merchandise.
See also: Interest, Finance Charge

Short-term Credit
Alternative financial service providers of overdraft loans, car title loans, and refund anticipation loans offer extremely short-term credit, typically a few days to one month, and charge interest rates in the triple digits. The excessive charges far outweigh the risks associated with these loans.
See also: Alternative Financial Services, Car Title Loan, Interest, Payday Loan, Predatory Lending, Overdraft Loan, Refund Anticipation Loan

Small Business Ownership Rate
Small business ownership rate refers to the total number of firms with 5-99 employees as a percentage of people in the labor force.

Subprime Lending
Subprime lending is a type of mortgage lending intended to serve borrowers who do not qualify for prime loans because of credit problems or a limited credit history.  See also: Credit History

Unbanked
Unbanked refers to the percentage of households with neither a checking nor a savings account.

Underbanked
Underbanked refers to the percentage of households that have either a checking or savings account but continue to use on costly alternative financial services.  See also: Alternative Financial Services

Sources:
Community Development Financial Institutions Fund. What we do: Overview. Retrieved from http://www.cdfifund.gov/index.asp
Center for Responsible Lending. Glossary. Retrieved from http://www.responsiblelending.org/tools-resources/glossary/
Corporation for Enterprise Development. Assets and Opportunity Scorecard. Retrieved from http://assetsandopportunity.org/scorecard/
Corporation for Enterprise Development. Children’s Savings Basics. Retrieved from http://cfed.org/programs/abc/about/childrens_savings_basics/
Corporation for Enterprise Development. Individual Development Accounts. Retrieved from http://cfed.org/programs/idas/
Federal Deposit Insurance Corporation. Glossary. Retrieved from http://economicinclusion.gov/glossary.html
Federal Financial Institutions Examination Council. Community Reinvestment Act: Background and Purpose. Retrieved from http://www.ffiec.gov/cra/history.htm
National Federation of Community Development Credit Unions. About Us. Retrieved from http://www.cdcu.coop/i4a/pages/index.cfm?pageid=256