JumpStart Executive Director Laura Levine and Southeast Regional Director William Cheeks (jumpstartcoalition.org)

The JumpStart Coalition for Personal Financial Literacy, a national nonprofit advocacy group that aims to improve the financial management skills of America’s youth, draws lots of attention for its surveys measuring how much kids really understand money. Last spring, Federal Reserve Chairman Ben Bernanke even led a joint news conference to announce JumpStart’s most recent findings, calling it “a leader among organizations seeking to improve the personal financial literacy of students from kindergarten to the university level.”

The 180 corporations, government agencies and nonprofits that are partners and provide financial support to the coalition get prominent billing on JumpStart’s Website, and share in the prestige of a group that promotes national standards for financial literacy education in the country’s classrooms.

But also included in the coalition is CompuCredit, an Atlanta subprime lender that specializes in high-rate credit cards, payday loans, auto financing and debt collection, focusing on customers with poor credit scores. In December of last year, CompuCredit reached a $114 million settlement with the Federal Deposit Insurance Corporation and the Federal Trade Commission, which had charged CompuCredit and two partner banks with deceiving hundreds of thousands of customers by failing to properly disclose upfront fees and credit limits on their cards, thereby sinking borrowers further in debt. In addition, JumpStart’s Southeast regional director, a paid consultant who serves as a liaison to the group’s state affiliates, also counts CompuCredit as a client of his private consulting firm.

JumpStart executive director Laura Levine said that she was aware that CompuCredit belongs to JumpStart’s coalition, and that the coalition’s Southeast Regional Director William Cheeks also works for CompuCredit as a consultant. But, she said, no questions had been raised about the situation until an inquiry from TWI. Levine said JumpStart staff would explore the matter.

“No one’s called it to our attention as a problem,” Levine said. “Now that we’ve talked about it we will look into it further.”

JumpStart is not taxpayer-funded, although government agencies like the FDIC and Freddie Mac are partners. Corporate partners pay $5,000 annual dues to the coalition, with lesser fees for government groups and nonprofits. Membership has to be accepted by the board of directors, Levine said. Businesses that only do payday loans would never be approved for membership, she said, but the situation “gets into a real grey area” when a company, like CompuCredit, offers a range of financial products.

JumpStart describes its mission as promoting financial literacy through advocacy, research, standards for financial literacy education, and educational resources.

It also maintains an online clearinghouse of approved personal finance materials for educational use. Its partners provide financial support, and JumpStart in turn offers guidance and resources to help member organizations with their own financial literacy efforts. It does not allow any coalition members to sell or distribute their own products through JumpStart.

Regarding Cheeks, Levine noted that he is a consultant, not an employee, and that JumpStart can’t dictate what clients his private firm might accept. “We’re a coalition of organizations and entities that share a commitment to financial literacy education,” Levine said. “We have a lot of financial services firms that may be competitors, or may have different positions from each other. They aren’t working for us. They came to JumpStart to share in our support of financial education and financial literacy efforts.”

But Irene Leech, president of the Virginia Citizens Consumer Council, said she found CompuCredit’s involvement with JumpStart troubling.

“I’m disappointed,” said Leech, who also specializes in consumer issues as a Virginia Tech professor. “It’s distasteful, and it doesn’t improve its efforts. I would have absolutely said no to both these situations, at a bare minimum. I have a pretty high expectation for a group like this. There are many professional and academic organizations that I belong to that are members, along with the consumer groups. They’re the entity that everyone is looking to when it comes to measuring financial literacy with a high degree of accuracy.”

Leech added that “I just wouldn’t have thought that their leadership would have wanted to go this way. I’m really sad they’ve gone this route.”

In Virginia, JumpStart’s state coalition was credited with helping require financial literacy education in school curriculums, and also is active in other states to promote financial literacy at a local level, Leech said. Next month, JumpStart will sponsor its first national educator conference for K-12 teachers, devoted specifically to personal finance education. FDIC Chair Sheila Bair is scheduled as the keynote speaker.

At last spring’s joint news conference, Bernanke said the regional Federal Reserve banks work closely with JumpStart state coalitions on financial literacy issues. And JumpStart is probably most well-known for its biennial financial literacy surveys, which usually receive wide press attention. The April 2008 survey found that graduating high school seniors still were struggling with financial literacy basics.

Regarding the coalition partners, Levine said that “Many of our partners conduct financial education or support financial education activities–JumpStart’s role is to support, in some ways, what the partners do. For example, if a partner has a financial education product, we list it in our clearinghouse to try to help users find it. So, we don’t specifically ask them to do things for us.  We ask them to base their materials on the national standards, to help advance the
mission of the coalition.”

“We generally recommend their participation in financial literacy activities and efforts,” Levine continued, “but we don’t specifically ask them to do things.  Partners support us financially for the effort that we do, generally, on behalf of all, such as publication of the standards, operation of the clearinghouse, (and) promoting Financial Literacy Month.”

Leech said JumpStart has been very successful, particularly at the state level, in getting more businesses to join the coalition. But while partners from Merrill Lynch to Experian sponsor JumpStart surveys, conferences and other activities, CompuCredit should be treated as a different case, she said. Subprime lenders often seek to align themselves with more mainstream organizations to deflect controversy over their practices, Leech noted. CompuCredit’s membership in the JumpStart coalition reminds her of businesses that create fake consumer groups with benign-sounding names as cover, she said, and there should be no grey area in determining whether the firm belongs in JumpStart.

“I’m not buying any of it. We all know that folks are being taken advantage of” by subprime firms and payday lenders, Leech said.

For his part, Cheeks, president of a Georgia fiscal management consulting firm, described himself as a retired Equifax executive whose main goal is consumer education. As to whether any conflict of interest exists by consulting for both JumpStart and CompuCredit, Cheeks said that “I consult with a lot of companies” and added, “I’m not going to get into that discussion.”

“I work to help consumers understand credit – how credit works, how to improve their credit,” said Cheeks, a former Vice President for Consumer Education at Equifax. “I do that for all of my clients. I am a consumer educator. That is exactly what I do. With JumpStart, my focus is kids. I want to get to students as early in life as a possible, so they can build a good credit history.”

He declined further comment regarding CompuCredit.

Guy Cecala, publisher of Inside Mortgage Finance, which covers the subprime industry, said subprime lenders like CompuCredit usually have a problem when it comes to supporting financial literacy, since some basic lessons would be not to take out payday loans or to pile up debt on high-rate credit cards.

The FDIC, for example, said its charges against CompuCredit stemmed from a fee-based credit card marketed to consumers with low credit. The FDIC said the solicitations “failed to adequately disclose significant upfront fees and misrepresented the consumer’s initial available credit. The solicitations appeared to offer credit cards with a $300 credit limit; however, consumers were immediately charged as much as $185 in inadequately disclosed fees, leaving them with as little as $115 in available credit.”

CompuCredit did not admit or deny liability in the settlement of the charges. A company spokesman did not respond for comment.

Subprime lenders have been reinventing themselves since the mortgage crisis hit, turning to conducting mortgage loan modifications or offering foreclosure counseling, Cecala said. CompuCredit’s affiliation with JumpStart fits that mold, he said.

On its Website, CompuCredit says it provides a “much needed second chance” to consumers overlooked by traditional financial institutions. It also lists financial literacy among its philanthropic activities. The company also features a “financial wellness” section, which includes a financial literacy guide for consumers.

Levine said Cheeks has been a consultant for Jumpstart for about five years. CompuCredit has been a coalition partner since at least 2007, she said.

CompuCredit has been involved in controversy over its financial literacy efforts before. The Southern Christian Leadership Conference drew criticism for entering into a 2007 partnership with CompuCredit, with plans for joint “economic empowerment” workshops aimed at educating minorities borrowers about credit, and a co-branded credit card.

In the housing crisis, poor people — of all the likely suspects — are playing the role of scapegoats. Conservatives support the idea that the Community Reinvestment Act, an anti-redlining law, caused the subprime mortgage meltdown. They contend government regulations forced lenders to make bad loans to low-income borrowers.

Thoma quickly dismisses this. Instead, he raises an important question. If someone has good credit, and pays their rent month after month, year after year, shouldn’t there be some way to help them buy a house?

From Thoma:

We are about to start passing rules and regulations to try to prevent another financial crisis from happening, and I don’t want to see people excluded from home ownership unnecessarily. I know it’s unfashionable to stick up for the poor right now, to advocate for increased home ownership, and in particular to say that it was not a mistake to try to increase home ownership rates at lower income levels, but (1) poor households didn’t cause the financial crisis, though in many cases they were victims of it, and (2) it’s the right thing to do in any case.

He’s on the mark, here – it is the right thing to do.

And, as Thoma points out, there are right ways to do it. The correct lesson from the housing crisis isn’t to keep poor people from buying homes — it’s to help them afford to maintain home ownership once they do buy. Oftentimes, pricey home repairs, like a new roof, can send people who live close to the edge over that edge, and they default. Also, low-income borrowers are the least likely to have enough money for a substantial downpayment, which either excludes them from buying entirely, or puts them into a home for which they have little stake – another risk factor for default.

Thoma has some great proposals for this, which I haven’t heard talked about before:

If your household income is in the qualifying range, the government will grant you an equity stake in the house of, say, $5,000 (or pick an amount you like better). If you stay in the house for seven years or more, then the $5,000 is yours if you ever sell the house (perhaps as a tax credit)….

A big problem would be repairs – roofs, plumbing, that sort of thing. Big expenditures like that could cause problems and lead to default. Some sort of insurance against this could be made available and required as part of the house payment (along with co-pays to create better incentives but still keep the cost reasonable).

Thoma says his ideas aren’t refined, but they are a beginning.

Whatever solutions policymakers can come up with, the goal is the same – something ought to be done. In this atmosphere of rescuing banks and shoring up the credit markets, it could be easy to overlook supporting home ownership for low-income borrowers.

In the long run, doing so would be yet another mistake.