Payday loan alternatives are becoming more affordable

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Perhaps the most unprecedented shift, the 2021 Consolidated Appropriations Act, designed to provide financial assistance during the pandemic, included $ 3 billion specifically for the CDFI fund, which provides financial assistance to CDFI and minority depository institutions (MDI). This amount is almost equal to the total amount received by the foundation since its inception in 1994. “There is a lot of government investment in mission-driven institutions,” says Betty J. Rudolph, FDIC’s national minority and community banking director. …

Inspired by the 2020 national race, CDFI and MDI – institutions that are often CDFIs but serve predominantly minority communities and have minority leadership – have also raised hundreds of millions of dollars from some of the nation’s largest technology and finance companies. This includes Google ($ 180 million), Bank of America ($ 150 million), PayPal ($ 135 million), and Twitter ($ 100 million). At the end of 2020, philanthropist Mackenzie Scott unveiled her gift of over $ 4.1 billion to 384 organizations, with a focus on those working in communities with “low access to philanthropic capital,” 32 of which are CDFIs.

The flow of funds means that CDFI will be able to attract more clients and help them. “We are focused on helping them leverage these new creation and growth resources to better serve their customers and create wealth in their communities,” says Rudolph.

In mid-June, the Treasury allocated $ 1.25 billion to fund 863 CDFIs; 463 loan fund organizations and 244 credit unions received awards.

Capital Good Fund, a Rhode Island-based CDFI, says this will have a transformative impact on its ability to provide unsecured personal and other loans to its clients. Unlike banks, which, according to Capital Good founder and CEO Andy Posner, check payroll receipts, credit reports and 1099 to determine an applicant’s eligibility for a loan, Capital Good analyzes bank history, reviews letters from family or friends, and makes amendments for immigrants who can pay in cash. The whole process can be done on a smartphone in about 10 minutes, and decisions are made within two days. Small dollar CDFI loans have an annual rate of 5 percent, with no application, issue, close or late fees.

In April, CDFI opened applications for a new Small Dollar Loan (SDL) program designed to compete with payday lenders. Under the program, up to $ 13.5 million will be allocated to certified CDFIs to create loans of up to $ 2,500 that will be paid in installments with a statement of payments to at least one credit bureau. The program aims to provide opportunities for those who are out of service and do not have access to banking services who traditionally do not have access to the mainstream financial system.

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