Putting Predatory Lending Out of Business Through Affordable Small-Dollar Loans

I have developed a model that takes on the $141 billion predatory loan industry that consists of payday, auto-title, and other lenders.

Photo of Andy
3 1

Written by

Eligibility

  • I am not an employee of BNY Mellon, or an immediate family member of a BNY Mellon employee
  • I am over 18 years of age
  • My organization is incorporated as a non-profit, for-profit, or hybrid organization, or I have a partner that is incorporated and could accept funds on my behalf
  • I have already piloted my initiative and have some initial evidence of impact
  • My organization is headquartered and creating impact in the United States

Gender

  • Man

Where are you making a difference?

Capital Good Fund is headquartered in Providence, Rhode Island and offers loans and financial / health coaching throughout Rhode Island, Delaware, Florida, and Massachusetts. As a primarily online lender, we reach families in every part of these four states--and plan to expand further.

Focus Areas (required)

  • Business & Social Enterprise
  • Development & Prosperity

Date Started

I incorporated Capital Good Fund on February 10, 2009.

Organization Type

  • nonprofit/NGO/citizen sector

Project Stage: Select the description below that best applies to your approach.

  • Scaling (expanding impact to many new places or in many new ways)

Budget

  • $1m - $5m

Website or social media URL(s) (optional)

https://www.instagram.com/capitalgoodfund/

Twitter URL

https://twitter.com/cgfund

Facebook URL

https://www.facebook.com/capitalgoodfund/

LinkedIn URL

https://www.linkedin.com/company/capital-good-fund/

1.Founding Story: Share a story about the "Aha!" moment that led the founder(s) to get started or the story of how you saw the potential for this to succeed.

When the financial system collapsed in 2008, I was getting my MA in Environmental Studies at Brown University, where I was studying financing mechanisms for clean energy. I also learned about Muhammad Yunus and microfinance. I saw that financial services could be a force for good or a force for bad, and decided to explore the need for credit locally. I discovered that predatory loans like payday loans are a scourge, and decided to see if I could solve it in a manner that was a) life-changing for borrowers and b) scalable for the nonprofit. My passion for social justice stems from the Jewish tradition of Tikkun Olam and the fact that my relatives fled persecution in Russia & Germany--I know what happens when we don’t fight for good.

2. The Problem: What problem are you helping to solve?

Neither banks nor nonprofits banks offer small personal loans. As a result, the predatory industry grows space--there are more payday branches than McDonald’s and Starbucks combined. The average bankruptcy results from a monthly shortfall of $26; paying triple-digit APRs, the low-income risk financial ruin. And a family making $25K / year spends more on financial services (check cashers, payday lenders, etc.) than on food. That is unacceptable.

3. Your Solution: How are you planning to solve this problem? Share your specific approach.

Capital Good Fund is the only nonprofit in the country that offers, at scale, a suite of personal loans that compete with a $141 billion predatory industry. These loans, used for vehicle purchase/repair; security deposits; emergencies; immigration expenses; etc, save borrowers anywhere from $500 to $5,000 on interest & fees (vs predatory loans with triple-digit APRs) build credit, & support families. Our innovative underwriting process allows us to lend to the low-income with bad credit while maintaining a 96% repayment rate. We also offer a nationally acclaimed 1-on-1 Financial & Health Coaching Program, which provides education re: banking, credit, budgeting, available resources, & affordable healthy living. Our low monthly fee is reported as 0% APR loan to all credit bureaus to help clients build credit. Our online platform & bilingual staff allow us to serve clients in English or Spanish in 4 states; we can easily scale this platform to increase our reach nationally. Moreover, our model means that we have a path to operational sustainability through earned income. Finally, we aim to seize enough market share from this industry to force them to lower their rates or close up shop

4. Example: Please walk us through a specific example of how your solution is working to solve the problem.

Imagine an undocumented survivor of domestic violence, Maria (a real client, but not her real name). She is ready to move to a safe apartment, but lacks savings and credit. Absent Capital Good Fund, she gets a $500 loan from a payday lender at 278% APR. She moves in, but soon spends 35% of her income servicing the debt; she must choose between her family and her debt. With Good Fund, she gets that loan at 35% APR, saving $700 in interest and building her credit. Now she is safe from her abuser and making affordable payments. Then she learns that to get a green card, she needs $7K for a lawyer and filing fees; Good Fund offers that loan, and she gains legal status. Finally, through Financial Coaching, we help her get a bank account, build savings, access benefits, find a primary care provider, and more. Over time, she buys a car and then a home: a base of financial stability is built.

5a. Too many people in the U.S. have unmet needs for financial products and services. How is your work reaching a population(s) that is currently underserved? If it is not reaching an underserved population yet, how might it in the near future?

We serve low-income families in RI, DE, MA, & FL who lack access to affordable credit and thus turn to predatory loans (e.g., 278% APR payday loans) for cash flow needs. Of our clients: 20% have no credit; 80% average a 550 score. 65% are single mothers; 90% are low-income; 70% are minorities; many are undocumented. We reach clients through myriad community orgs and with an easy-to-access mobile platform, and we collect feedback throughout the process to remain responsive to their needs.

5b. Please specify if the population you are reaching is underserved due to any of the following characteristics:

  • ability
  • geography
  • immigration status
  • work status
  • language
  • race/ethnicity
  • age - elder
  • socio-economic class

6. Marketplace: Who else is addressing the same problem? How does the proposed project differ from these approaches?

For profit lenders such as LendUp, Lending Club, Avant, and Insikt claim to be equitable by using a data-driven approach. However, they neither serve the same populations nor address the same financial inequities that inform our mission; they primarily refinance credit card debt for clients whose average FICO score is 680. Our only direct competitor is Oportun, a for profit CDFI who also offers small personal loans. However, their rates are higher (starting at 50% APR vs 35% for us), they don’t offer our suite of products (especially loans over $2K), and they don’t operate in the same states.

7. Impact: How has your project made a difference so far?

Since 2009, we have financed 2,900 loans for $5.4M with a 96% repayment rate & served over 3,500 families. Our Randomized Control Trial & program data analyses have shown the avg client 12 months post-intake has: a 93-point FICO increase; $450 monthly income increase (earned & benefits); 45% decrease in food insecurity; 70% decrease in predatory service use; a 60% increase in savings, and a 39% decrease in inability to afford medical treatment. Our loans themselves provide social impact: we’ve financed 140 vehicles; 141 immigration cases; 782 payday loan alternatives; and 100 security deposits, among other things. For example, an undocumented mother got a loan to pay for a green card. She was then able to take out a car loan--personal transportation allowed her to find a better paying job. Her credit soared as a result of these loans and she was abe to purchase a home for her family.

8a. Spread Strategies: Moving forward, what are the main strategies for scaling your impact?

We understand what geographic expansion entails in terms of compliance, personnel, funding, and systems. Our products meet a wide range of needs and our team’s outstanding customer service is affirmed through stellar online reviews. We have a sound underwriting policy based on ability-to-pay and banking history instead of FICO score, with a 96% repayment rate. We are ramping up our advertising; adding new partners; hiring more staff; and improving our front and back-end systems. As an organization, we stand primed for scale and will expand to more states where predatory loans are rampant.

8b. If applicable, which of the following scaling strategies have you launched?

  • Organizational Growth
  • Large Scale Partnerships
  • Lobbying, Policy Change
  • Industry Standards (labels, certification, awards, etc.)

9. Financial Sustainability Plan: What is this solution’s plan to ensure financial sustainability?

In 2015, we launched a scaling plan that called for us to finance 17,000 loans by 2023, with the goal of becoming operationally self-sufficient (as a high volume, low margin lender, we need scale to break even). By 2017, we reached 24% self-sufficiency. Currently, we supplement philanthropy with a Direct Public Offering where social investors earn an average of 5%; to date we’ve raised $1.4M. This capital is used to invest in our operating capacity to reach our target and pay back investors.

10. Team: What is the current composition of your team (types of roles, qualifications, full-time vs. part-time, board members, etc.), and how do you plan to evolve the team’s composition as the project grows?

We have a world-class team of 30 full-time employees and nine dedicated volunteer board members. 75% are minorities, and 70% are female--mirroring our client base. As CEO, I oversee a seven-person Executive Team, which in turn manages staff in our five departments: Lending, Coaching, Accounting, Systems, and Communications. We have a dedicated HR Officer and are highly professional and efficient in our operations. Finally, we have a detailed staffing plan to meet our needs as we grow.

Help Us Support Diversity! Part 1 - Which of the following categories do you identify with? (optional)

  • White (for example: German, Irish, English, Italian, Polish, French)

Help Us Support Diversity! Part 2 - Do you identify as part of any of the following underrepresented communities? (optional)

  • No, I do not identify with an underrepresented community

How did you hear about this challenge?

  • Social media

Organization name

The Capital Good Fund

Program Design Clarity

We offer loans to in RI, FL, DE, & MA who show ability to repay & need. Loan Officers collect the info Credit Officers need to render a decision within 1-3 days. Loan Servicers help clients remain current on payments.
Financial & Health Coaching clients receive four 90-minute 1-on-1 sessions and two 30-minute check-ins over 12 months with a Financial Coaching Officer using our nationally recognized curriculum. They set goals and track progress

Approach to financial wellbeing: does your project focus on creating financial wellbeing through innovating on any of the following?

  • credit
  • education / literacy
  • investments
  • loans

Innovation type: Please select which of the following types of innovation best characterize your work

  • Product innovation (Introduction of a good or service or improvements made to existing products)
  • Process innovation (execution of a new or considerably improved production or delivery method)
  • Institutional innovation (Creation or changes in organizational structures, the setting up of new types of financial intermediaries, or to changes in the legal and supervisory framework)

Partnerships in detail: tell us about your partnerships that enhance your approach.

Collaborations help legitimize our work within a disenfranchised community, often wary of unfamiliar financial services. We’ve partnered with orgs such as United Way, local Housing Authorities, UnidosUS, Catholic Charities, The American Immigration Lawyers Assoc., RI Coalition against Domestic Violence, & dozens more who refer clients who need help with emergencies, utilities, security deposits, immigration expenses, past due bills, etc & would otherwise be forced to turn to predatory lenders.

If you won the Unlocking ₵hange Challenge, how would you invest the prize money of $50,000?

We will use funds to invest in front- and back-end systems improvements to improve customer experience, decrease loan processing time, enhance our customer acquisition, ease accessibility, and enable us to generate more earned income by decreasing operating costs.

Awards & Recognitions: What awards or recognitions has the project received?

In May 2018, Capital Good Fund was honored by the United Way of Rhode Island with the 2-1-1 Innovation Award for our social impact. Our Financial Coaching + Health program was spotlighted by the Center for Financial Security in their March 2018 newsletter.
Due to his innovative work in the microlending industry, our CEO Andrew Posner was also selected as a 2011 Hitachi Yoshiyama Young Entrepre

Attachments (1)

GoodFund-RCT_InterimReport2017 (2).pdf

An interim report about the Randomized Control Trial we are running in the Providence Public School District.

3 comments

Join the conversation:

Comment
Photo of Michelle Parker

Glad to see your entry, and great impact in RI and beyond!

View all comments