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Posner: ``Right, it’s risky, and you can’t make a lot of money on a thousand dollar loan and you can’t bother take collateral - or our clients don’t’ have any collateral to give. So in step the payday lenders for instance and they say `Great, we won’t take collateral, but we’ll charge 261 percent.’’’
That’s right: 261 percent, a rate approved by the General Assembly in 2001. Numerous attempts to lower that have failed, in part because of a strong lobby for the payday lenders at the State House.
So who uses the Capital Good Fund? Posner said a typical borrower might be a woman trying to get out from an abusive relationship, and attempting to move from a shelter to an apartment. She’s got a good job but not enough money to put down a security deposit.
Posner: ``So what happens? In the absences of us she’ll either go and get a payday loan or one from a loan shark or she’ll pawn something, which will get her into the apartment, but then all of her money is going to go toward interest payments and three months later she might get evicted anyways. And then she’s right back where she was. Or she doesn’t move. Both of those scenarios can have life and death consequences. With us she can come and get a loan for $1,000, she can pay that back over two years in monthly payments that are affordable, she’ll build her credit because we report it to the credit bureaus, and then once she’s in that situation -in a safe situation - we’ll offer her financial coaching .’’
The fund issues personal loans for $2,000 or less. It has made more than 800 loans, totaling more than $700,000 and has also had more than 700 people complete the financial coaching sessions.
Borrowers pay 30 percent interest with a 4 percent closing fee, which Posner acknowledges may sound high to an average borrower but is an attractive alternative to the payday lenders.
Posner: ``The payday loan model, it only works if you’re caught in a cycle of debt. So the average person rolls over their payday loan 8 times and that’s how they keep racking up the fees and it turns into this nightmare cycle of debt.’’
Hummel: ``Did you know much about finances before you came?’’
Scott: ``I was completely financially illiterate.’’
Shawn Scott is just finishing the last of four financial coaching sessions. He has met one-on-one with a counselor who has gone over concepts Scott never learned in high school. The fourth session has a new element: a tutorial on health and healthcare.
Scott: ``We started out laying out my budget, my expenses, we went over budgeting, that was the first module, then after that we moved to credit, like what is credit, how to control your debt, good debt versus bad debt, and ways to build your credit.’’
Posner: ``So for us a budget or a debt management plan is just a tool to get at a broader issue. And that’s what makes us really unique. So for instance, if someone comes to us, before we even talk about a budget, we talk about their life, because oftentimes what is driving the budget is domestic violence, hypertension, depression, all sorts of things like that. So we actually as a way to get at what’s really happening in someone’s life.’’
And the vetting process is rigorous. Posner says only about half of those who apply are approved for loans, which may account for the 91 and a half percent repayment rate.
Ana Marcia has taken out three separate loans from the Good Fund over the past three years. Two were to help her launch and expand a Mary Kay business.
Posner translated our interview with her.
Marcia: ``This loan opened up a lot of opportunities for me in my business. In fact I tripled my sales thanks to the loan.
And Marcia took out a third loan to help buy equipment for a cleaning business.
Hummel: ``Why not go the route of a regular bank?’’
Marcia: ``Because the banks had never opened the doors of opportunity to me the way that you did and I also didn’t have credit when I started. And now that I do have credit I can buy a house in the future and really achieve my dreams.’’
Posner says the Good Fund is expanding into auto loans beginning July 1st, with a maximum limit of $13,500 and rates ranging from 9 percent to 15 percent.
Posner: ``And this is an economic development issue: people who don’t have reliable transportation either can’t get jobs, or can’t keep their jobs; so there’s a huge need and this is a predatory industry that we want to put out or business and it’s a loan that we’re going to make a lot more money on.’’
Posner would like to see the Capital Good Fun expand to other states in an effort to move toward sustainability. Right now, interest and fees cover only about a quarter of operating costs. The rest comes from donations and grants.
But to do that Posner says the fund needs to issue loans on a much larger scale.
Posner: ``So they payday lenders don’t love us and that’s all well and good for me. But they’re publicly traded, they have branches on every street corner and so it’s hard to compete with them. ‘’
Hummel: ``You’re not really a threat are you?’’
Posner: ``No yet.’’
Hummel: ``Do you want to be a threat?’’
Posner: ``We want to be a threat. Success for us would be putting them out of business or forcing them to lower their rates. ‘’
The fund has survived and thrived - despite launching a year after the country’s financial collapse.
Hummel: ``If you knew what you knew now, would you still have done what you did?’’
Posner (pause) ``Yes. It’s better that I didn’t know how difficult it would be, but I think I’m very proud of what we’ve done and we occupy a space that no one occupies. We’re really nationally recognized for what we do, which is pretty cool for Rhode Island and we’re really a Rhode Island success story.’’
In Providence, Jim Hummel, for The Rhode Island Spotlight.