Opinion: A state office of financial empowerment could help stop debt traps across Colorado

Although we are from seemingly very different communities — Aurora, a large city; and the Roaring Fork Valley, a rural area that spans three counties — through our collaborative efforts, we’ve come to understand that many Coloradans, regardless of their location, live with profound social and economic disparities.

Both communities have marginalized and often forgotten constituencies, and both are home to the essential workers and gig economy workers who keep our economies going, yet are the most vulnerable among us. 

Between 2007 and 2011, when the Great Recession resulted in one-fourth of American families losing at least 75% of their wealth and more than half of all families losing 25% of their wealth, we watched our neighbors fall victim to high-cost lending options and avoidable debt traps as they struggled to pay rent or put food on the table. 

Once again, our economy is on fragile footing, and along with it, the financial futures of thousands of Coloradans. Over the last year, we’ve seen this predicament become dangerously exacerbated as the pandemic spreads across the country with little financial relief. 

Through September 2020, up to 42% of Coloradans said they took on debt to meet everyday expenses, and by the end of 2020, more than one-quarter of adults in our state faced eviction or foreclosure. These consequences are only compounded for Coloradans of color. 

Even though families across Colorado face the same battle year after year, there still hasn’t been enough done to address this scary reality with statewide force. Consumer protections —  like 2018’s state Proposition 111, which capped payday lending rates at 36% — are a good start, but Coloradans need more than just reactive protections. 

We need proactive action to overcome the lack of access to capital, bank accounts, non-predatory credit, and financial counseling. A statewide focus on financial empowerment will offer our community members access to proactive tools so they have the agency to build long-lasting wealth. 

READ: Colorado Sun opinion columnists.

We need a statewide office of financial empowerment (OFE) in Colorado. 

Senate Bill 148, sponsored by state Sen. Julie Gonzales and Reps. Daneya Esgar and Kerry Tipper, could make that happen. The measure was approved Monday by the Senate Finance Committee.

We’ve seen the overwhelming positive effect of financial empowerment services. As researched by the Cities for Financial Empowerment Fund, OFEs are proven to lower debt, increase savings, and alleviate the risk of evictions and foreclosures. 

In fact, just by providing free one-on-one financial coaching and navigation services, the Denver Office of Financial Empowerment & Protection has been credited with reducing clients’ debt by over $6 million, increasing average credit scores by 50 points, and preventing nearly 40 evictions since its creation in 2018. The collective impact of these services is significant and can play a critical role in helping families escape generational poverty. 

While many communities have some government and nonprofit resources dedicated to this kind of work, what’s needed is coordination and scale. Although the value is clear, few communities have had the resources or time to expand their work as needed. 

Now, as we pass the year mark of COVID-19, this work is needed more than ever, but is also harder than ever for communities to do alone, thanks to slashed budgets caused by the pandemic. 

Colorado can help by stepping in and providing the critical tools of state government to ensure financial empowerment is brought to all four corners of the state. 

Despite the differences in our communities, we see one very real similarity: Community members facing financial challenges, unable to find safe and affordable credit solutions, and lacking trusted resources to help navigate their options. 

Make no mistake — COVID has both exposed and accelerated the gaps in our system. We worry about what will happen to our communities when the stimulus checks stop coming, and the eviction and foreclosure moratoriums lift. 

But even before the pandemic, Coloradans were falling prey to vicious debt cycles. A full and equitable recovery requires greater support from state and local governments.

With a statewide office of financial empowerment, we can address our weak spots, and build a stronger Colorado for all. 

Kat Traylor is a political strategist and advocate for criminal justice reform and reforming police involvement in Black and brown communities in Aurora. Barbara Freeman is the founder and team leader of LaMedichi Savings Clubs, working in the Roaring Fork Valley.