Andy Posner is founder and CEO of Capital Good Fund, a nonprofit, certified community-development financial institution that offers low-interest loans and financial coaching to underserved communities.
Posner recently hosted a webinar with Pew Charitable Trusts discussing the impact of the Biden administration on consumer protections and the ongoing toll the pandemic has taken on the customers his organization serves.
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PBN: How will the $12 billion in funding for CDFI lenders in the latest stimulus bill impact Capital Good Fund and the customers it supports?
POSNER: In a word, the funding is transformational. We know that many of the people we serve – low-income families that are predominantly of color and female-headed – were left out of the CARES Act, which was the original stimulus passed in response to the pandemic. For instance, minority-owned businesses were far less likely to access the Payroll Protection Program and these same communities had a harder time receiving their stimulus payment. What’s more, many immigrants were ineligible for the funds. By allocating $12 billion to CDFIs, Congress is making sure that the communities most impacted by the pandemic will receive the assistance they need – for their families and their small businesses.
At Capital Good Fund, while we don’t yet know how much of the funding will be allocated to us, we do know that we will leverage every dollar. For instance, if we were to receive $500,000, we would turn that into roughly $1.2 million lent out to over 1,300 struggling families, predominantly through our Crisis Relief Loan.
PBN: How specifically has Capital Good Fund tried to serve its existing and new customers in need during this crisis?
POSNER: We’re extremely proud of the speed with which we responded to the pandemic, as well as the breadth of products and services we’ve offered to those impacted by it. Specifically, we did three things. First, in late March, we reached out to all 2,300 of our active borrowers and offered them a no-questions-asked, three-month deferment period on their loan. By the end of 2020, roughly 12% of our borrowers had made use of the offer to restructure their loan (deferment, interest-only period, extension of the loan term). As a result, our portfolio has performed remarkably well despite an unprecedented economic catastrophe.
Second, we launched the Crisis Relief Loan, which ranges from $300 to $1,500, has an APR [annual percentage rate], is underwritten based on pre-crisis income, features a three-month deferral period built in (followed by 12 monthly payments), and is reviewed on an expedited basis. We’ve already closed 1,100 of these loans for nearly $1 million.
And finally, we launched a financial coaching hotline and an abbreviated version of our traditional, yearlong coaching program; this “crash course” focuses entirely on getting through the immediate crisis and less on long-term planning.
PBN: The pandemic has really brought attention to long-standing inequities in how financial institutions generally serve low-income and minority populations. Do you think this will result in the kind of systemic change to address these inequities? What more needs to be done?
POSNER: The pandemic has exposed a whole host of preexisting inequities in our economy, not only in the financial system but also in education, housing, policing, the labor market and health care. Communities of color, women and immigrants are being disproportionately harmed by the virus and the resultant economic crash.
I am very worried that on top of the unfathomable levels of death and illness, the past year is going to result in a raft of people with damaged credit, burdened with debt and filing for bankruptcy – compounding and extending the crisis for years to come. Between that and the likelihood that financial institutions will pull back from providing credit to the communities most in need of it, we could see long-term negative consequences for people seeking loans to buy a home or vehicle, start a business and get a student loan.
Bank regulators need to keep interest rates low and continue to encourage lenders to make credit available using all the tools at their disposal; many banks and credit unions look to guidance from entities like the OCC [Office of the Comptroller of the Currency], FDIC [Federal Deposit Insurance Corp.] and NCUA [National Credit Union Administration], which can make clear that they will look favorably upon this sort of lending.
Additionally, the Consumer Financial Protection Bureau needs to enact the predatory loan reforms it proposed under the Obama administration and subsequently rescinded under the Trump administration in 2017. These reforms would have required, among other things, that high-interest actors like payday loans conduct an ability-to-pay test, which is a simple, commonsense requirement.
At the same time, the regulation of interest rates in the predatory industry (in Rhode Island, payday lenders charge 261% APR) falls to the states, which need to step up. In Illinois, where we also operate, we were part of a coalition that just got a bill passed that will cap the interest rate on all loans in the state at 36%. Advocates have been trying to accomplish the same thing in Rhode Island, to no avail. Will this be the year the legislature stands up the industry’s lobby? We’ll see. We have a lot of work to do.
PBN: Your organization also serves as an alternative to predatory lenders. How big an issue are these kinds of predatory lending schemes and lack of consumer protections? How, if at all, will the incoming presidential administration change that?
POSNER: Predatory lending of all stripes – payday loans, auto-title loans, pawnshops, rent-to-own agreements and high-interest installment loans – has surged as people have sought out means of staying afloat while waiting for unemployment benefits to kick on, to receive stimulus checks, or simply to get back to work.
To give an idea of the scope of the problem, according to the Pew Charitable Trusts, payday lending alone is a $9 billion industry, with 12 million borrowers paying an average of $520 of interest and fees on a $375 loan; there are more payday loan branches than there are McDonald’s and Starbucks combined, and they tend to be located in communities of color. A family earning $25,000 per year will spend as much on interest and fees as it will on food – about 10% of income. When you consider that rates of food insecurity are skyrocketing – in Rhode Island, the percentage of families that don’t get three square meals a day went from 9% in 2019 to a stunning 25% in 2020 – it is simply unacceptable to allow lenders to charge rates that make it even harder to put food on the table.
Our Crisis Relief Loan is in high demand precisely because millions of families nationwide are in a position to pay back an affordable loan once the economy recovers, but in the meantime, they are at risk of losing everything. This is something that the Rhode Island legislature could address if they were to simply muster the courage to stand up to the payday loan lobby. Other than the industry, no one opposes a 36% rate cap. It’s never been more important [to] implement strong consumer protections.
PBN: Do you think the pandemic will give rise to more alternative financial institutions to better address and meet the needs of those who have been underserved by traditional banks? Or will banks change their policies and outreach to better serve these populations?
POSNER: I think it will give rise to alternative lenders, but whether or not they better address the needs of underserved consumers and small businesses is an open question. The investment in CDFIs and community banks and credit unions is a really positive trend; if it continues, there’s reason to think that the right lessons will be learned from this crisis. That said, we have to keep in mind that the financial system cannot, on its own, solve for the underlying causes of the disparate impact of the pandemic. Absent a higher minimum wage; more affordable housing and transportation options; dramatic reform to policing; a true reckoning with racial and gender discrimination in all forms; a fairer tax system; and a whole host of other reforms, responsible lenders will be in the position of being asked to tackle problems that go beyond the scope of what we can address.
For instance, while our loans can help people purchase food to get through this crisis, the fact that people are so at risk of hunger is a structural inequity and societal failure. We can only fulfill our mission of creating pathways out of poverty and advancing a green economy if we are working in concert with local, state and federal elected officials and agencies and under a legal framework that supports and protects vulnerable communities. Which is why one of our areas of focus in 2021 and beyond is to lend our voice to the policy conversation, ensuring that new legislation truly benefits those we serve.
Unfortunately, in our system it all too often [is] the rich and powerful that drive public policy. Nonprofits like Capital Good Fund can and must be a moral voice. We look forward to working with the Biden administration and cities, towns and states across our six-state footprint to push for a more just America.
Nancy Lavin is a staff writer for the PBN. Contact her at Lavin@PBN.com.
