Economic mobility isn’t simply a matter of earning a higher income. It refers to the ability of individuals or households to improve their economic standing over time through opportunities to survive day to day, build savings and accumulate wealth. Many factors contribute to economic mobility (PDF), including educational attainment, health and wellbeing (PDF), access to jobs, skill building and safe financial services. It is no wonder that cities play such an important role in facilitating the upward mobility of their residents. Communities with high economic mobility do not just survive — they thrive. Local governments are constantly working to implement strategies that improve their residents’ economic mobility, and their efforts will be even more critical in the future in response to recent federal executive actions and agency responses.
However, since the 1940s, intergenerational upward economic mobility has declined. And declining economic mobility impacts some demographics more than others.
CDFI Fund and MBDA
While Juneteenth commemorates the end of chattel slavery in the U.S., the long-standing impacts of centuries of oppression and discrimination continue to hinder present day households’ economic mobility. Legislation such as the Civil Rights Act, Equal Credit Opportunity Act, and government entities like the Community Development Financial Institutions (CDFI) Fund and the Minority Business Development Agency (MBDA), were established to alleviate some of the disproportionate residual effects of historic marginalization.
A record number of executive actions were published within the first 100 days of the Trump administration. One such action, “Continuing the Reduction of the Federal Bureaucracy,” significantly reduces the functionality and personnel of seven government agencies that play a significant role in the lives of city residents, such as the CDFI Fund and MBDA. Funding from the CDFI Fund has been used to develop affordable housing, establish small businesses and provide financial services to areas that lack banking infrastructure. Limiting the operations of the CDFI Fund will restrict the economic opportunity of some of the most vulnerable communities.
The MBDA promotes the growth and global competitiveness of Minority Business Enterprises (MBEs) and in 2024 had a network of more than 100 grant programs supporting 9.7 million minority-owned businesses in every state and territory and 45.9 percent of Americans are employed by small businesses. Entrepreneurship is seen as an effective strategy for attaining financial stability and growing wealth, as well as achieving equality for protected classes. Hampering the MBDA is likely to put thousands of minority-owned businesses at risk, which could have long-term implications for their economic mobility.
Executive Order #14281
Executive Order #14281 Restoring Equality of Opportunity and Meritocracy eliminates disparate impact liability in the federal government, a legal doctrine that prohibits organizations from adopting policies that would disproportionately harm marginalized groups. According to the Congressional Black Caucus Foundation, “[d]isparate impact liability has long served as an accountability metric for federal agencies, safeguarding women, communities of color and other protected classes from undue harm from the government and private companies.”
Withdrawing this order restricts agencies like the Department of Housing and Urban Development (HUD) and the Federal Trade Commission (FTC) from considering disparities in their policies or fully examining the impacts of discrimination against minority communities, limiting their ability to access housing or improve their credit scores.
Upward economic mobility requires a solid financial footing from which to build. This includes not only having adequate income and access to banking services, but also being protected from predatory financial practices. The Consumer Financial Protection Bureau (CFPB) responded to an executive order from the administration and withdrew sixty-seven pieces of guidance that impact most federal consumer protection laws including the Consumer Financial Protection Act of 2010, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Truth in Lending Act, the Electronic Fund Transfer Act and the Military Lending Act. Retracting this guidance will have myriad effects on financial institutions nationwide and the residents they serve.
Recalled Guidance Documents
Among the recalled guidance documents was an interpretive rule requiring that “Buy Now, Pay Later” (BNPL) and other lenders extend many of the same legal protections and rights to consumers that apply to traditional credit cards, including the rights to dispute charges and demand refunds for returned products. A CFPB report on BNPL loans found that borrowers with subprime or deep subprime credit scores made up the majority of BNPL users, and that consumers with BNPL loans were more likely to hold higher balances in other types of unsecured consumer credit.
Yet another recalled document is the “Improper Overdraft Opt-in Practices” circular that was designed to close a large regulatory loophole that exempted overdraft fees as a finance charge, allowing banks to collect vast amounts of revenue from consumers as these fees increasingly became driven by profit rather than as a courtesy service extended by the bank, as was their original purpose. The CFPB estimated that the rule would add up to $5 billion in annual overdraft fee savings to consumers. Rescinding these pieces of guidance threatens residents’ ability to achieve upward mobility due to the often hidden and high fees that many banks charge for overdraft coverage and other services.
How Municipalities Can Take Action
Much of the fallout from these recent executive actions will fall to local governments to remediate and protect their residents. One critical step that municipalities can take is to identify and connect with local financial institutions and analyze how accessible they are to residents — both in terms of proximity, as well as ensuring that banks’ service conditions, such as minimum balance requirements and overdraft fees, are not prohibitive.
City leaders can also incentivize these institutions to operate in their community’s bank deserts by establishing Bank On programs that connect residents to affordable options in participating financial institutions that offer safe accounts that meet a set of national criteria. Cities should also take the opportunity to reach out to communities that will be most impacted by these changes, either making a renewed effort to be a trusted resource or deepening existing relationships.
Economic mobility does not automatically imply upward movement — people are perpetually moving up and down the economic ladder, particularly those most vulnerable to challenging economic times. Many city residents who are struggling financially are likely to continue facing challenges to upward mobility as a result of federal changes, and many more will find their economic stability shaken. Municipal governments have always played an important role in contributing to their residents’ upward mobility, and to address these new challenges, they will need to step up and develop strategies that fill gaps left by diminishing federal protections and supports.
Explore Municipal Financial Empowerment Strategies
Roughly, one in three Americans are financially insecure. Discover how local leaders are tackling financial instability through empowerment strategies. Explore key trends, themes, and promising practices in “A Decade of Municipal Financial Empowerment Strategies: Findings from a 2024 Field Scan.”
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