For anyone driving in Houston, the payday loan storefronts are hard to miss.
For many low-income Houston residents, they’re even harder to avoid, as an option of last resort for quick cash.
A survey last year found that more than half of American families don’t have enough cash to cover a $500 unexpected expense. Cash advance companies (payday lenders) offer paycheck advances for emergency needs, but they also charge exorbitant interest rates that can put their customers in an even deeper bind.
“The business model of a predatory lender is to keep their customers in debt,” said Jeff Zhou, co-founder of lending company Fig Loans. “They pay a lot in advertising to get each customer, so they need to squeeze as much money out of them as they can.”
“They structure the loan so you’re trapped in debt – they’ll charge a fee for paying off your loan early; they’ll make you pay in person; they won’t accept partial payments. As a result, the average loan gets rolled over seven to eight times.”
Looking past FICO scores
Jeff Zhou and John Li, graduates of The Wharton School at the University of Pennsylvania, knew that there had to be a better alternative. They cut their teeth at institutions like Bridgewater and The Boston Consulting Group, where they used predictive analytics to make billion dollar decisions.
They thought: why can’t we use the same approach to offer fairer loans for victims of predatory lenders?
Fig Loans, a graduate of Fintech US 2016, is an online service that offers small-dollar bridge loans to borrowers who would otherwise resort to payday, title or pawn shop loans. The loans build credit, and Fig’s mission is to help consumers transition into mainstream credit products.
It all starts by looking past the FICO score.
“The FICO score is helpful, but often outdated,” Jeff says. “We look at other factors, like people’s bank statements. There’s a lot of rich information in there about how people live, how they spend, and how they’re likely to spend in the future.”
A grassroots approach to lending
The backbone of Fig Loans is a long-time partnership with the United Way of Greater Houston and other nonprofits in the city, whose financial coaches help people with education and resources. Jeff and John based their product off of advice and input from those coaches and community members.
“United Way Thrive in Houston has a monthly meeting where all the nonprofits that work in financial sustainability in Houston get together to talk about challenges and share solutions,” John says. “We show up in person because Fig is a contributing member in all our communities and we are part of the Houston community.”.”
“When you take a leap of faith and trust someone, which we do everytime we lend, I believe a deeper bond is formed.” Jeff says. “And after we’ve helped them succeed, I hope they’ll think of us as more than a lender.”