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.

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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 offers a unique suite of personal loans ranging from $300 - $25,000 that serve as direct competition to a $141 billion predatory industry. Our loans save borrowers anywhere from $500 to $5,000 on interest and fees vs predatory loan products with triple digits APRs, build credit, and enable investments in key family needs. These loans are used for vehicle purchase/repair; security deposits; computers; emergencies; catching up on rent/utilities; immigration expenses; and other personal needs. Every dollar saved on interest is a dollar that can be better spent on food, housing, etc. We also offer a unique psychology-driven, one-on-one Financial & Health Coaching Program. Thanks to over $1 million invested in our online platform, we can serve clients, in English or Spanish, anywhere in our four states of operations, and the platform can be scaled to other states. This means that our solution is cost-effective, quick, convenient, and competitive with our predatory competitors. We propose to scale Capital Good Fund nationwide and take away enough market share from this industry to force them to either lower their interest rates to remain competitive 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?

Of our clients, 20% have no FICO; the rest average a 550 score. 65% are single mothers; 90% are low-income; 70% are POC. They often lack vital cash flow and are declined by standard banks, who are closing branches, eliminating free accounts, and divert from small loans. Lacking options, they turn to predatory lenders to quickly meet their needs. We serve clients offering unique products and partnering with community organizations to supplement the suite of services community leaders can provide.

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 2,800 loans for $5M with a 96% repayment rate and successfully served over 3,500 families to date. We’re running a Randomized Control Trial, generating data to prove our model works. In fact, the following is true of the average client 6 - 12 months post-intake: 95-point FICO increase; income increase of $249/month; 45% of food insecure families become food secure; 25% reduction in use of predatory financial services; 39% decrease in families unable to afford a doctor or medication; and 60% increase in emergency savings balance. Then there is the impact of how the loans are used. We have financed 140 vehicles; 141 immigration cases; 782 payday loan alternatives; and 100 security deposits, among other things. A good example of our impact is an undocumented mom who got a green card loan in 2010 and a car loan in 2014. Her credit soared and now she owns a home!

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 thus far. 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 rife.

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. In the meantime 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 our highly professional and efficient in our operations. Finally, we have a detail 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

Attachments (1)

GoodFund-RCT_InterimReport2017 (2).pdf

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

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Photo of Haley Burns

I love CGF! :)

Photo of Andrew Posner

:) We aren't half bad! Haley Burns