As a financial services non-profit, it is natural for us to define our enemy–and more importantly, the enemy of the poor families we serve–as the predatory service companes that, taken together, represent a $100 billion / year industry (and growing).  This industry consists of payday lenders, check cashers, pawn shops, rent-to-own stores, refund anticipation lenders, and auto title lenders.  Before getting to the meat of this post, I’d like to quickly lay out why these companies are so damaging to our clients and the economy as a whole.  Let’s take payday lenders, which are, according to a report by the Center for Community Economic Development (CCED), “…small, short-term, very expensive consumer loans…which [average] $375, plus the fee–which is typically in excess of 300% APR…the high fees and short-term lump-sum payment create a debt trap that causes consumer harm.” CCED found that, in 2011 alone, “The payday lending industry had a negative impact of $774 million…resulting in the estimated loss of more than 14,000 jobs.  U.S. households lost an additional $169 million as a result of an increase in Chapter 13 bankruptcies…bringing the total loss to nearly $1 billion.”

I could continue to outline why the other services are equally damaging, but you get the point.  Now comes the question: what to do about it?  From our perspective, the answer lies in a three-pronged strategy: legislation to ban abusive practices; financial coaching to obviate the need for the services to begin with; and offering a more afordable and equitable product that out-competes what predatory companies can offer.  On the legislative side, for instance, we are part of a coalition that has been trying–unsuccessfully–in Rhode Island to cap at 36% APR the interest rate that payday lenders can charge (they can currently charge up to 260% APR).  Were that legislation to pass, the consumer would immediately be better protected from the most abusive practices.  On the financial coaching side, we are working one-on-one with hundreds of families to help them budget and build savings so that, when emergencies arise, they don’t need a loan at all.  And finally, recognizing that access to credit is essential in our economy, we offer payday loan alternatives of up to $500 at 36% APR, and loans of $501 to $2,000 at 20% APR

Here are two statistics that represent “low-hanging fruit” opportunities for social impact:

1) “Nearly two-thirds of the 5.4 million legal immigrants from Mexico who are eligible to become citizens of the United States have not yet taken that step.” (Pew Hispanic, The Path Not Taken February 2013)

2) “Roughly a quarter of Americans eligible for federal nutrition assistance don’t sign up for it,” and “The U.S. Department of Agriculture…says that in fiscal 2010 nearly 51 million Americans were poor enough to qualify [for food stamps] but only 38 million received benefits.” (Huffington Post, Food Stamps Avoided By Million of Eligible Americans August 2013)

Being a U.S. Citizen confers numerous monetary and non-monetary benefits, from increased access to benefits such as student aid, to the ability to vote, petition family members to come to the U.S. and eliminate the fear of deportation.  In the same vein, food stamps not only can mean the difference being being hungry and eating three square meals a day, they also reduce one of the main stressors of being poor: the fear of not having enough income to meet expenses.  Clearly, then, given the induspitably high impact of becoming a citizen or qualifying for SNAP (Supplementary Nutrition Assistance Program), combined with the (relative) ease of taking either step, we are presented with an opportunity to change lives at low-cost.

Why This Opportunity?

Before we do anything, however, we need to first understand why this opportunity exists; if citizenship or SNAP benefits are as attractive as they seem, wouldn’t more people take advantage of them?  It turns out that there are a number of barriers that we need to address, some pecuniary, some cultural, some psychological and some logistical.  For instance, roughly 18% of those that are eligible for citizenship identify “the cost of naturalization” as the primary reason for not initiating the naturalization process.  This is not surprising when you account for the fact that the U.S. government charges $680 for the application, and immigrants can spend anywhere from nothing to thousands of dollars to receive help with the application, preparation for the exam and other assistance.

Why The Cost?

There are several reasons.  First, the amount charged by the government has steadily increased, from $95 15 years ago to today’s $680.  Second, the naturalization application forms aren’t easy, especially for those with limited English prociency; as a result, low-income families often spend money on help, sometime paying unscrupulous, even predatory, people and companies for the service.  This can drive up the cost to $3,000 and beyond for some families.  And finally, there is a cost-benefit analysis to be done: renewing one’s legal permanent resident status, which is infinitely better than being undocumented, only costs $450.

One Naturalization Approach

Fortunately, there are fairly simple ways to address this problem and encourage more people to fully invest and partake in our democracy.  As a case in point, we partner with the three (3) non-profits in Rhode Island–the Catholic Diocese, Dorcas International Institute and Progreso Latino–that are accredited to assist in the process; these agencies charge around $200 for help with filing forms and preparing for the naturalization exam (we also partner with attorneys that offer immigration services, although they charge more).  Through the partnerships, clients that are eligible for citizenship but can’t afford the fees are referred to us for our immigration loan; if approved, we lend the $880 to the family, which then continues with the process while paying us back in small installments over 24 months.

Thanks to this loan, over 40 families have attained citizenship with a nearly 100% repayment rate.  Think about the potential for scale here–we could be doing hundreds of thousands of citizenship loans sustainably (thanks to interest income) and with tremendous benefit both to the borrower, her family and society as a whole.

Food Stamps

When it comes to SNAP benefits, which can range from as little as $30 to hundreds of dollars for the poorest families with children, the “market opportunity” is astonishing.  Indeed, we could come close to dispensing with food insecurity in America if 100% of eligible families signed up for SNAP.  So why isn’t everyone signing up?  Ellen Vollinger of the Food Research and Action Center summed it up nicely: “Some people don’t know [they’re eligible], for other it’s difficult to navigate the process, for others it’s the stigma.”

I’ve seen these barriers firsthand during one-on-one Financial Coaching sessions.  Despite what some politicians say, most people don’t want to be dependent on public benefits, and a surprising percentage of the poor don’t take advantage of them for that reason.  Still others find it difficult to work through the application, or are turned off by the generally unpleasant application process, or simply are not aware of their eligibility.  Still, all of these barriers can be addressed through our Coaching service, or through any number of programs that serve the poor, be they focused on job training, GED preparation or domestic violence.

More Solutions

One of the ways, for example, that we overcome the stigma is by pointing out the extent to which wealthier Americans take advantage of the system through loopholes and lobbying–if they do things that are borderline or outright illegal, you shouldn’t feel at all bad about receiving benefits to which you are 100% entitled!  Or, we take a look at the client’s budget and show how SNAP will mean the difference spending more than they earn and being able to put away money into savings.  And finally, after screening for eligibility, we can walk the client through the application.

Again, this doesn’t cost much money to do and has phenomenal social impact.  Not only does the family gain access to more food, but the long-term benefits are difficult to fathom: we know that hunger impairs cognitive development, which dramatically reduces eduational attainment, which leads to a less educated workforce, which means more people on public benefits and a small tax base…In other words, hunger costs us much more in the long-term than food stamps cost in the short-term.

In short, so many social and environmental problems are overwhelming, multi-facted and complicated that it can be easy to overlook low-cost, high-impact initiatives. So when we think about immigration or public benefit reform, we have to keep in mind the reasons why people do or do not take advantage of these opportunities.  Low-hanging fruit won’t get us where we need to be, but it’s a clear step in the right direction.

For More Information:



Pew Hispanic Center

National Council of La Raza

Share our Strength

Feeding America

Robert Wood Johnson Foundation

The logo for our Financial Coaching + Schools Program

When I first launched Capital Good Fund back in 2009 I was, If I may use the phrase, “Chief Cook & Bottle Washer.” Put another way, I did almost everything, from working with clients to managing volunteers to raising money.  For the next three years, even as we added on new staff and more volunteers, that paradigm didn’t change too much: I was still serving clients as late as a few months ago (processing loan applications, for instance).  However, now that our expenses are quickly rising, in large part due to the randomized control trial we are running, I am forced to sever myself from client-oriented tasks and turn increasingly to fundraising.

Until now, I’ve always managed to cobble together the requisite funds from grants and a few large donations, but there are limitations to that model: large donors take time to cultivate, and foundations give on a schedule that doesn’t always align with when you need the funds.  In short, cash flow is becoming an issue.  So to address that, I have crafted a plan wherein I will raise $20,000 per month from individual donors.  To do that, I am spending much of my time reaching out to, meeting with and pitching potential donors–those that can give anywhere from $25 to $10,000.  I can assure you that this is not what I would prefer to do: program management and development, public speaking and client services are more exciting and inspiring.  But without money we cannot change lives, and I will do anything to help CGF grow. Not only that, but our business model is such that, as we scale and improve our operational efficiency, we will decrease our reliance on donor money and increase the amount of revenue we generate from our products and services (lending, Financial Coaching, etc.).  This is critical because it means that we are not forever doomed to spending so much of our time asking for charitable contribution, a fact of which I try to remind myself when I tire of the task!