Small-Dollar Lending - North Carolina Assets Alliance

Small-Dollar Lending
Fran Rosebush
Program Manager, Assets & Opportunity Network
[email protected]
When was the last time you needed a little extra
money than you had to cover a necessary cost?
Where did you look for it?
Financial insecurity in North Carolina
Over half of households are
liquid asset poor in North
Carolina.
52%
Liquid Asset Poor
lack savings to cover basic
expenses for three months
if job loss, a medical
emergency, or other crisis
leads to a loss of income
Local data by city, county, and metro area
www.assetsandopportunity.org/localdata
Local Perspective
 Raquel Lynch, Crisis Assistance Ministry
Alternative Small Dollar Lending
Connecting Policy & Product Development
Jeanne M Hogarth
2014 Assets Learning Conference
© 2014 Center for Financial Services Innovation
7
Defining
Financial
Health
FINANCIAL
HEALTH
MEANS…
an individual’s
DAY-TO-DAY
financial system
functions well…
increases the likelihood
of
LONG-TERM
financial resilience and
opportunity.
© 2014 Center for Financial Services Innovation
8
Core Elements
© 2014 Center for Financial Services Innovation
9
The Compass Principles
Embrace Inclusion
Responsibly expand access financial
services
Build Trust
Develop mutually beneficial products
that deliver clear and consistent value
Promote Success
Drive positive consumer behavior through
smart design and communication
Create Opportunity
Provide options for upward mobility
These principles are grounded by a solid foundation of values:
Profitability and Scalability • Deep Customer Knowledge • Safety
Variation and Choice • Relationships • Cross-Sector Participation
© 2014 Center for Financial Services Innovation
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Compass Guide to Small-Dollar Credit
Guidelines
Practices
Examples
© 2014 Center for Financial Services Innovation
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Compass Guide to Small-Dollar Credit
© 2014 Center for Financial Services Innovation
12
SDC Test & Learn Working Group
© 2014 Center for Financial Services Innovation
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Other Partnerships
Innovation Labs
Small-Dollar Credit: Developing a Suite of
Sustainable Products for the Underbanked
VITA Credit Builder Project: Leveraging Tax
Season to Build Credit
Fast and Fair Loan
$100 to $1,500 with flexible payment
schedules
© 2014 Center for Financial Services Innovation
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CFSI Resources
© 2014 Center for Financial Services Innovation
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Reshaping
the Future of
Small Dollar
Lending in
Texas:
From a “Cycle of
Debt” to a “Cycle of
Success”
The Texas Story: From A Debtor’s
Dream…
1820’s
Immigrants to
Texas wrote “GTT”
on their doors
before leaving, to
let their creditors
know they had left
their debts behind.
…to a Payday Lender’s
Paradise
 Weak social safety net and large working
poor population.
 Permissive regulations: No fee caps or
cycle of debt protections.
 $1.4 billion in fees in 2013, nearly 74,000
cars repossessed.
 Average APRS: Over 500%
 Some of the largest payday lenders
headquartered in Texas:
 Ace Cash Express
 Cash America
 Cottonwood Financial
 EZCorp.
 First Cash
 A 2011 estimate found that 60% of profits
from largest payday lenders were
Payday and Auto Title Locations in
Texas:
3,200 Storefronts-down from a high of
3,500
Creating A “Cycle of
Success”
1. Adopt
meaningful
market
standards.
+
2.
Expand
affordable loan
options.
550 700
$
Stops the
community
economic drain.
Credit
Score!
Helps families
build a positive
credit history.
Frees up family
resources, allowing
saving and building
for the future.
Expanding Affordable Loans
•
In partnership with RAISE Texas, statewide
asset building coalition, among others,
convened stakeholders to develop state
alternatives action plan.
•
Worked with partners to lay the groundwork
for statewide expansion of pilot Community
Loan Center model operated through CDC’s in
Texas.
•
Partnering with state credit union league,
REAL Solutions director, to share successful
loan models with credit unions and support
new credit union loan programs.
Successes and Opportunities
Successes
Opportunities
• Statewide licensing law passed in 2011—
first step in a framework of accountability
• As of August, 2014, 18 cities passed uniform • Reform opportunities at local,
state and federal level—CFPB
local ordinance.
rulemaking an historic
• Covering 40% of locations and 25% of
opportunity.
Texans.
• Cities large and small, conservative and
.
liberal among the 18.
• Increasing engagement with credit
• Texas Fair Lending Alliance expanding,
unions, nonprofits and cities to
with broader base of support.
expand consumer access to
• Coalition includes United Ways, Texas
affordable small dollar loans.
Catholic Conference, and nonprofits across
the state.
• Building groundwork for more affordable
loan products.
•
Progress towards statewide rollout of
Community Loan Center.
The Credit Union
Small Dollar Market
Assets Learning Conference 2014
September 19, 2014
Ann Solomon, Strategic Initiatives Manager
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National Federation of Community
Development Credit Unions
Innovation
•
•
•
Develop new LMI products
Strategic partnerships with funders and community organizations
Identify and promote best practices
Investments
•
•
Our Community Development Investment Program invests more than $30 million in
CDCU Members
Strengthen CDCUs’ financial position and expand their impact
Capacity Building
•
•
Technical assistance, webinars, practical tools, guides,
Consulting services support CDCUs at all stages of development
Credit Union Context
• Credit unions are cooperatively owned
• Unsecured small dollar credit is core to credit unions
business
Credit
Builder
Loans
Overdraft
LOC
Micro
Consumer
Loans
NCUA Small
Dollar Short
Term
All CUs
19%
45%
15%
11%
CDCUs
52%
53%
35%
29%
Source: NCUA 5300 Call Report Data from December 31, 2013
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NCUA Small Dollar Short Term
• In 2010, NCUA established regulation on a credit union
payday alternative product:
 Loan size $200 - $1,000
 1 – 6 month terms
 28% maximum APR
 No more than three STS loans in a six-month period
 No more than one STS loan at a time to a borrower;
 Fully amortizing loan;
 A minimum length of membership requirement of at
least one month;
 Application fee no higher than $20
NCUA Small Dollar Short Term
As of December 31, 2013:
# of Credit
Unions
# of Loans
Issued
$ Loans Issued
Avg. Loan
Size
All Credit Unions
536
142,857
$ 89,827,445
$629
CDCUs
37
8,177
$
$735
6,012,365
Source: NCUA 5300 Call Report Data from December 31, 2013
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CU Small Dollar Examples
Product Name
Freedom Line of
Credit
Select Cash Now
Back on Track Loan
$500
$200 - $1,000
Up to $3,000
Term
Open-end
2-6 Months
12-36 Months
Interest Rate
Up to 25%
28%
8%
Application
Fee
$25 - $55
(annual)
$20
$0
• 10% Required
savings
• 10% Required
Savings
• Max 4 loans
per year
• Documentation of
expense required
• Payment made
directly to the
vendor
Loan Size
Features
27
Borrow and Save Features
•
•
•
•
•
•
$300 and $5,000 loans
3 and 12 months term
Installment Loan
Rates ranging from 9% - 28% APR
Maximum $20 fee
Savings requirement 25% to 50% of loan
amount
• Underwritten on the basis of the borrowers
ability to pay-payments no more than 5%
of paycheck
• No more than 3 loans per year
• Not more than one loan out at a time
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Freedom First FCU – Early Results
• 219 loans: $390,812
• Weighted average
interest rate: 15.91%
• 219 savings accounts:
$198,415
• Average borrower
income: $28,800/year
• Delinquency ratio: 0.04%
• Charge-offs: less than 1% • Average borrower credit
score: 569
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Lessons So Far…
• Sustainable, responsible small dollar program for
borrowers with damaged or no credit
• Higher savings requirement:
–
–
–
–
Supports assets building
Doesn’t scare people off
Decreases lender’s risk
Seems to decreases likelihood of repeat borrowing
30
To access slides from the
Assets Learning Conference, go to:
www.assetsconference.org
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Thank you!
Fran Rosebush
Program Manager, Assets & Opportunity Network
[email protected]