Capital Good Fund makes headway with alternative to payday loans

Capital Good Fund makes headway with alternative to payday loans

WOONSOCKET - An organization focused on fighting poverty with the help of short-term lending and financial counseling set its sights on Woonsocket in 2013, and is hoping to expand this year using public donations through a technique called crowd-funding.

Capital Good Fund set up shop in Heritage Place on Front Street last November, launching a pilot program that offers an alternative to payday loans.

It's the first-of its kind in the state.

The Woonsocket Payday Loan Alternative Program, a joint venture with the United Way, set a goal of around 10 loans per month according to Executive Director Andy Posner, but already has doubled that number.

"We would love to get to the point where we're doing more like 100," Posner told The Breeze.

The idea - which was launched in direct response to arguments against payday lending reform - is to make small, short-term loans, with interest rates capped at an annual rate of no more than 36 percent. Payday lenders, in comparison, are allowed to charge up to a 260 annual percentage rate, or APR, in Rhode Island.

"The opponents will tell you if you reform the system the people will have no where else to go, so this is our response," said Posner.

Posner's organization was part of a coalition that lobbied to ban such loans along with other vocal advocates, including Margaux Morisseau, director of community building for NeighborWorks Blackstone River Valley, a Woonsocket non-profit focused on improving neighborhoods and providing affordable housing for the city's low income residents.

Posner's work with Morisseau ultimately led him to launch the unique program in a city where they say the loans have had a destabilizing influence.

Woonsocket currently has three businesses that offer payday loans - two Advance America locations and a Check 'n Go - and opponents claim the product is predatory, creating a cycle of debt that many borrowers cannot escape.

"Our mission is to provide equitable financial services that create pathways out of poverty," the Capital Good website explains.

Posner said the program in Woonsocket has been successful so far, with borrowers coming to Capital Good through other city non-profits such as NeighborWorks and Connecting for Children and Families. The office offers emergency loans with a relatively quick approval process of around just two days.

"They're a little less easy to obtain than payday loans, because they'll give them to anyone with a job, but they're definitely a lot easier to get than conventional bank loans," Posner said.

The company also offers longer-term consumer loans of up to $2,000 and interest-free weatherization loans for residential energy-efficiency upgrades of up to $5,000.

"Our efforts in Woonsocket have really been focused on emergency loans," said Posner.

The $300 to $500 quick cash boosts come with a one year term and so far, the organization has had a lower rate of default than expected at just around 3 percent.

Now Posner, a 29-year-old Brown University graduate and promoter of "microfinance," is looking to expand his organization's reach with a unique crowdfunding plan.

CGF has launched a non-profit IPO, or Immediate Public Opportunity, allowing anyone to own a share in the company for a small cost.

The organization hopes to raise at least $100,000 by issuing 4,000 'Social Innovation Shares' priced at $25 a share. In addition to a tax-deduction, shareholders are entitled to vote to fill one seat of CGF's board of directors and will have access to other perks, such as CGF jewelry, T-shirts and custom 'stock' certificates.

In the first month of the campaign CGF has already sold 682 shares to 93 early adopters.

"The impetus for it is we have a very unique business model and a great track record, but we just don't have the money to scale our operations," said Posner.

A few high-profile leaders in the business, philanthropy, and government have jumped on board to support the IPO and CGF's mission, including Ellen Ford, CEO of People's Credit Union; Bruce Van Saun, CEO of RBS Citizens Financial Group; and House Deputy Majority Leader Rep. Frank Ferri.

Alan Hassenfeld, former chairman and CEO of Hasbro Toys and an active philanthropist in Rhode Island, has also purchased one of the first shares.

"I believe strongly in Capital Good Fund's model," Hassenfeld said. "Too many companies seem to take advantage of the poor. This non-profit IPO concept will enable Capital Good Fund to bring its products and services to thousands of families in need."

"One out of three Americans lives at or near the poverty line and income inequality is at its highest level since the Great Depression," said Posner. "Solving these problems requires forward-thinking, a powerful business model and, yes, money. For us, the IPO concept opens the doors to engaged supporters from around the country--the kind of support we need to continue to grow."

Posner said he hopes to finance the organization's rapid expansion through the first-of-its-kind approach in the state, which will give CGF an infusion of capital.

"I want to saturate the market and serve as many people as its possible to serve in the communities where we operate," said Posner.

In addition to Woonsocket, CGF has offices in Providence and Hartford, Conn.

Jamie Fulmer, senior vice president of public affairs for Advance America defended the payday lending model this week, saying that a 36 percent APR results in interest of less than 10 cents a day for a two week loan.

"No business can lend money at that rate without being subsidized," Fulmer said. "While our critics insist the prices of short-term loans are too high, a number of credit unions, community banks and nonprofit organizations that have piloted similar low-cost, small-dollar loan programs have struggled to sustain operations, even with subsidies and tax advantages."

But Posner disagrees, and says that because his organization makes money on the loans and charges for financial counseling, down the road CGF will not need to depend on philanthropy.

The initiative started as a dream during a social entrepreneurship class Posner took at Brown in 2008, and began as a student-led program. Now, the young entrepreneur has 15 employees working under him, and the organization has continued to recruit young and ambitious employees through the Americorp VISTA program.

"We get these incredibly motivated passionate workers," Posner said. "We're what happens when Silicon Valley crashes into a soup kitchen."

CGF is using Indiegogo, a popular crowd-funding platform for the IPO campaign. To purchase Social Innovation Shares, visit igg.me/at/IPO or contact Posner at Andy@CapitalGoodFund.org or 401-339-5437.