By Ryan Scott
By now we’ve all heard about the figurative “wage gap” that plagues the U.S. economy. Something we forget to include in that equation is that there’s an equivalent “credit gap”– the huge population of citizens who consistently hear the word “no” from their financial institutions when applying for loans, mainly because of their lack of a strong credit history.
Three of the top five U.S. banks have stopped offering personal loans and other national financial institutions are refusing to lend money to anyone with a credit score below 680, according to Banking Exchange. However, it’s worth noting that 680 is still within FICO’s range of ‘good’ scores, albeit the lower end of that spectrum.
That’s why Advance Financial has made it our mission to say “Yes.” No matter who comes through the door, if they have a job and direct deposit set up, they will receive a loan the vast majority of the time. We are opening up credit availability to more people, filling the void banks have left and providing this underserved market with the opportunity so many Americans take for granted — access to some extra funds when they need it.
At Advance Financial, we’ve created a true “judgement-free zone” where people can come to us without worrying about a bad credit score, a credit card mistake from their past or a few marks against their credit.
Statistics show there is a huge need for unconventional loans. Approximately 100 million small dollar personal loans are made to Americans annually – totaling an estimated $30 billion, according to the Pew Charitable Trusts. For many of these borrowers, it might be a matter of paying some extra dollars of interest versus being evicted from an apartment for not paying rent. It’s a price they’re willing to pay because it’s coming from a source that’s willing to take a chance on them.
Getting a “Yes” isn’t a given in the banking industry, primarily because there’s too much risk involved. However, if more financial service companies were willing to take on that risk, and provide one-on-one financial counseling along with each loan, this bad credit trend could actually be reversed. As a result, small-dollar loan customers who are given a chance to learn to responsibly build their credit could make their way back to mainstream banks. The very definition of a win-win.
It’s like the “teach a man to fish” principle. Helping people learn how to become more financially responsible makes it less likely that they will fall into America’s credit gap.
We are on our way there: The U.S. average credit score hit an all-time high in 2018 according to Credit Karma.
Additionally, the Office of the Comptroller of the Currency, under the U.S. Treasury, has been putting pressure on banks to offer small loans because these types of loans have become so essential to the average American.
Whether banks can start doing this or not depends on the passing of the EQUAL Act, which would overturn a 2013 FDIC limitation on small-dollar loans from banks, as well as allow for the exemption of some loans from a similar 2017 regulation on “Payday, Vehicle Title, and Certain High-Cost Installment Loans.”
Comptroller of the Currency, Joseph Otting, put it best in a press conference last year, “The need didn’t go away even though banks had substantially left the unsecured personal loan business.”
This is where our services, and those like it, have come in to bridge that gap – through judgement-free, highly transparent lending practices. In a very regulated and closely scrutinized industry, those are the most important standards to have, and they are the standards that are going to carve a space for the credit-poor to become credit savvy.
Ryan Scott is Senior Vice President of Marketing at Advance Financial with experience and skills in business and people management, budget management, staff development, marketing management, portfolio and brand management, sales management, HR functions, solution implementation, and strategy implementation. Ryan earned his MBA at Purdue University.