Payday loan alternatives are becoming more widely available
In perhaps the most unprecedented change, the Consolidated Appropriations Act of 2021, designed to provide financial relief during the pandemic, included $3 billion specifically for the CDFI Fund, which provides financial assistance to CDFIs and minority depository institutions (MDIs). That amount is nearly equal to what the fund has received in total since its inception in 1994. “There’s a lot of public investment in mission-driven institutions,” says Betty J. Rudolph, National Director of Development Banks. minorities and communities of the Federal Deposit Insurance Corporation. .
Boosted by the 2020 national race reckoning, CDFIs and MDIs – institutions that are often also CDFIs but primarily serve minority communities and have minority leadership – have also attracted hundreds of millions of dollars from some of the largest major technology and financial companies in the country. This includes Google ($180 million), Bank of America ($150 million), PayPal ($135 million), and Twitter ($100 million). In late 2020, philanthropist MacKenzie Scott went public with her gift of more than $4.1 billion to 384 organizations, with particular attention to those operating in communities with “low access to philanthropic capital”, 32 of them being CDFIs.
The influx of funds means CDFIs will be able to reach and help more customers. “We’re working to position them to use these new resources to build and grow, to better serve their customers and create wealth in their communities,” Rudolph says.
In mid-June, the Treasury Department provided $1.25 billion in financing to 863 CDFIs; 463 loan fund organizations were rewarded, as well as 244 credit unions.
Capital Good Fund, a Rhode Island CDFI, says it will have a transformative impact on its ability to provide personal and other unsecured loans to its clients. Unlike banks, which, according to Capital Good Founder and CEO Andy Posner, review pay stubs, credit reports and 1099s to determine an applicant’s loan eligibility, Capital Good assesses bank history, examines letters from family or friends and grants allowances to immigrants which can be paid in cash. The process can be done entirely on a smartphone in about 10 minutes, and decisions are made in two days. CDFI Small Dollar Loans have a 5% APR, with no application, origination, closing or late fees.
In April, the CDFI Fund opened applications for its new Small Loans (SDL) program, designed to compete with payday lenders. Under the program, up to $13.5 million will be distributed to certified CDFIs to create loans of up to $2,500, to be repaid in installments with payments reported to at least one credit bureau. The program aims to provide opportunities for unbanked and underbanked people who traditionally do not have access to the mainstream financial system.