our current thoughts

Last week the Consumer Financial Protection Bureau (CFPB) held its first ever “field hearing” to better understand payday loans and the consumers that use them.  The hearing began an interesting and ongoing dialog between the CFPB, underbanked consumers, and industry and community leaders.  Not everyone agrees on the way to best reach underbanked consumers but one thing that everyone agrees on is that underbanked consumers need and deserve competitively priced, transparent products.

We were especially interested in Congressman Alcee L. Hastings’s input via a letter written to CFPB Director Richard Cordray.  In the letter, he addresses some key advantages of non-bank financial services and the valuable role they play in underbanked communities. Congressman Hastings encouraged Corday to educate and assist consumers rather than push out innovation and non-bank products that have stepped in to provide much-needed alternatives.

Congressman Hastings also pointed out how the payday lending market is focused on protecting their customers saying: “It is important that the [CFPB] recognize and acknowledge the proactive best practices and radical reforms many lenders that offer payday loans have undertaken, unlike many other sectors in the financial services industry.”

We couldn’t agree more.  As advocates of fair and transparent non-bank financial products, we believe that non-banks should not only be held to a high standard but should lead the financial services industry in innovation and transparency.  At Think Finance, we call it Banking for the Rest of Us.

Our CEO, Ken Rees, had an opportunity to provide his thoughts to FoxBusiness.com regarding the Consumer Financial Protection Bureau this week.  Given the recent appointment of the CFPB’s new director, we were happy to have Ken share our unique understanding of the underbanked consumer.  Click here to learn more!  It’s worth the read.

When we were first approached by Native American tribes to help them develop emergency cash loan products we were initially skeptical.  Our technology platform has been successfully used by several banks but can Native American tribes make loans in the same way that banks do?

It turns out they can.  The sovereign right of Native Americans to conduct business activities both on and off the reservation is firmly established in both treaty and case law.  But what about the business case?

It’s no secret that traditional banks have been slow to meet the needs of underbanked consumers (60 million US adults according to the FDIC) who don’t have access to mainstream credit or use non-bank financial products such as payday loans. Recent regulatory activity has further limited consumer choice and reduced competition among financial providers.  This has had a devastating effect on consumers’ pocketbooks. This year alone, 20 million Americans will pay over fifteen hundred dollars in bank overdraft fees according to the FDIC.  In fact, banks collect $40 billion a year in overdraft fees at rates (over 3500% effective APR according to the FDIC) that make payday loans seem inexpensive by comparison. Consumers need more options.

What excites us about working with Native American tribes and other forward-thinking lenders (including some banks) is their desire to create innovative new products that are better than what’s offered today. For example, when the Chippewa Cree Tribe came to us they asked us if our technology platform could deliver an emergency cash product with the following attributes:

• Installment loan rather than a payday loan to eliminate the cycle of debt and ensure that customers can pay down the loan over time or pay it off early with no early payment penalties
• Price to the consumer that is significantly lower than a payday loan and continues to decline with each additional loan – ultimately as low as 10% of a payday loan rate
• Loan amounts up to $2500 to help consumers with larger financial needs than those served by traditional payday loans
• Reporting to credit bureaus to help consumers rebuild their credit ratings with successful payment history

The result of this development effort with the Chippewa Cree is a product called Plain Green.  Plain Green has lower rates and more flexible payment options than almost all other mainstream emergency cash loans.

Check out some startling comparisons here…

We’re proud to provide the technology that powers loan products offered by lenders including the Chippewa Cree’s Plain Green.  Not only is sovereign lending a legitimate tribal enterprise that is here to stay, but in many cases tribal lenders are beating banks at their own game by offering better products for underbanked consumers.  Furthermore, Native American lenders have established the Native American Lending Alliance to promote best practices and ensure effective self-regulation in the industry.

Launched earlier this year Plain Green has been a big win for both consumers and the Chippewa Cree.  Over 120,000 customers have already received Plain Green loans and their response has been tremendous.

Just as exciting, Plain Green has resulted in economic opportunity for members of the Chippewa Cree.  Dozens of tribal members are employed by Plain Green and every tribal member has already received a payment based on the success of the product.   The tribe has even been able to rebuild a baseball field with revenues generated by Plain Green.

With Plain Green, the tribe wins and the consumer wins.  Proof that innovation is the key to better and more transparent financial products.

A recent study by economic research group Moebs confirms what millions of underbanked consumers have always known:  Payday loans are less expensive than bounced checks and overdraft fees. Don’t believe it?  Let’s look at the math:

The average bank overdraft fee is $28 per transaction, with an average overdraft transaction size of less than $40.  A small payday loan of $100 (enough to cover two average overdraft transactions) costs less than $20. Consumers that use overdraft protection – whether intentionally or unintentionally — tend use it frequently.  In fact, 20 million checking account customers in the U.S. pay about $1500 or more in overdraft fees per year. It’s an eye-opening statistic. If these customers used payday loans instead of overdraft protection, they could reduce the fees they pay by more than 50%.

Payday loans are almost always a better option for consumers than overdraft protection.  But that’s not enough.  We think emergency cash lenders have a responsibility to make their product more convenient and less costly. That’s where we come in.  Think Finance is creating better options for the people whose needs are not being met by banks and payday lenders.  Here are a few examples.  And we’re just getting started.