The Tacoma Model for Financial Opportunity
This model combines scalable, high-quality financial counseling with beneficial financial products to remove barriers to exiting poverty.
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
Where are you making a difference?
Tacoma, WA, 98405
Focus Areas (required)
Business & Social Enterprise
Development & Prosperity
July 1, 2016
Project Stage: Select the description below that best applies to your approach.
Growth (have moved past the very first activities; working towards the next level of expansion)
Website or social media URL(s) (optional)
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.
In 2015, we asked if micro finance could help remove barriers to exiting poverty, but we didn't want to place ourselves in the role of debt collectors if our clients defaulted on their loans. We researched the matter extensively, looking at issues like the cost of underwriting, scalability, what types of loans could help people. We devised an approach centered on mitigating a mainstream financial institution's risk, which means building the best Financial Counseling program possible. We assumed all pre-underwriting duties, cutting costs for our credit union partner. Instead of a loan officer, WE would determine a borrower's ability to repay a loan, unlocking access to emergency loans, auto refinancing, small business loans, and more.
2. The Problem: What problem are you helping to solve?
This work has never been scaled. Traditionally, the asset-building world has focused more on "financial literacy" classes that focus on outputs, because classes can be scaled for multiple participants, but not measure outcomes. One-on-one counseling takes time. Unbanked and underbanked households might have bad borrowing habits. Credit unions are risk-averse. Predatory lenders are correct when they ask "where else will these people access loans?"
3. Your Solution: How are you planning to solve this problem? Share your specific approach.
We built the best Financial Counseling team. All of our counselors are AFCPE trained. We bypassed fintech (for now), because a) our clients might not have smart phones and laptops, and b) our model is about building strong interpersonal relationships through counseling. Counselors pull credit scores, provide debt reduction strategies, credit building support, household budgeting help, and help people set financial goals. We track 150 financial data points in Salesforce so we can view changes in credit scores, debt reduction, wages, monthly expenses.
Our credit union partner is a $1 billion financial institution that we built trust with over a two year period. We meet regularly with them as a team. Our binder of policies and procedures is two inches thick.
We hire our Financial Counselors with funding from agencies that want our services embedded at to work with their own clients, but maintain this network of counselors on our own payroll. They meet once per-week to learn from one another. In just over a year, we have grown to seven full-time counselors, with roughly ten more in process.
Counseling is free and we receive no payment for loan origination.
4. Example: Please walk us through a specific example of how your solution is working to solve the problem.
Judith is a single first-generation American mother of three running a house cleaning business that earns about $3,400/month. She has a vehicle for her job worth $12,000. She still owes $16,000 on the vehicle, and she is paying $550/month at a roughly 25% APR. Her credit score is decent enough at 640 to potentially qualify for refinancing without our help, but because her loan-to-value ratio is so high, no institution will touch her loan. After meeting with a Sound Outreach Financial Counselor, we discovered that Judith had 26 months of on-time payments. Our theory is, if you're paying on-time at $550/month, you can pay on-time for less. Our credit union partner took our advice and refinanced Judith's loan down to below 4%, saving her $191/month and $6,500 in interest over the term of the loan (48 months). We have $12,000,000 at our disposal to loan out, now that our CU won a CDFI grant.
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?
Counselors are embedded in places that need access to this essential service. Cultural, language, and geographic relevancy is built into the model, because the agency that contracts with Sound Outreach for a Financial Counselor selects the candidate that we will hire and place on our payroll and supervise. An agency serving immigrant and refugee populations can screen and select bilingual candidates. A housing authority can select a Counselor that comes from the community they work with, etc.
5b. Please specify if the population you are reaching is underserved due to any of the following characteristics:
age - elder
6. Marketplace: Who else is addressing the same problem? How does the proposed project differ from these approaches?
We are unaware of any other agency that combines all of the following:
-High quality, one-on-one financial counseling through a team of AFCPE-accredited counselors.
-Access to beneficial financial products through a mainstream financial institution using multiple methods of risk mitigation
-Scaled up delivery of services using funds from partner agencies wanting our counseling services.
-Alignment with workforce development.
-Entrepreneurship incubation supports.
-Community-wide asset-building advocacy.
7. Impact: How has your project made a difference so far?
From January through May of 2018, six active counselors have seen 400 individuals in over 2,000 one-on-one sessions. Average credit scores have increased 30 points in that time frame. Some people have seen increases of more than 100 points. Our local Habitat for Humanity referred a client to us recently because she needed help to become home-buyer ready. In six weeks, her Financial Counselor coached her to implement strategies that helped her boost her credit score from 630 to 720, bumping her to front of the line for a Habitat home.
We take raw Salesforce data and calculate to annualizes the combined savings, loss mitigation, and sources of revenue of our clients. One of our counselors saw 80 individuals last quarter, and between tax refunds (she prepares their taxes for the EITC benefit), savings, decreased interest, fee avoidance, etc, these 80 people saved $231,000 (annualized).
8a. Spread Strategies: Moving forward, what are the main strategies for scaling your impact?
Funders in Seattle have approached us to replicate our model. They offered to select an agency to adopt our model, and provide funding for two essential staff director positions and money for local organizations to hire financial counselors. A local credit union consulting firm writes CDFI applications for credit unions, nation-wide. They connected to a nonprofit that provides technical assistance to CBOs working with CDFIs. They would like to access our TA to help not just Seattle, but every community willing to pay to replicate this model. We need a one-time investment to scale the model.
8b. If applicable, which of the following scaling strategies have you launched?
Franchising, Licensing, Accreditation
9. Financial Sustainability Plan: What is this solution’s plan to ensure financial sustainability?
The beauty of the model is that the host agency need only sustain two key positions, the individual responsible for maintaining the agency's relationship with the credit union and each host site for financial counselors, and for the lead Financial Counselor who will oversee each program's AFCPE training and continuing education.
Once these pieces are in place, local agencies wanting a dedicated Financial Counselor will pay for the FTE. If the outcomes are good, they will keep funding the FTE.
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?
Our agency employs a diverse team of directors, Counselors, and Entrepreneurship and Employment Coaches (this model aligns well with workforce development and small business incubation, as access to higher wages provides more financial slack and the ability to put their newfound financial knowledge into practice). Our Director of Financial Opportunity has two decades of experience in the world of finance. Our Financial Counseling Program Manager is an accredited counselor and accountant.
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
If you replied "Other" in the question above, please specify. (optional)
Our work is aligned with our community's African American Financial Capabilities Initiative.
How did you hear about this challenge?