Opinion

Responsible Lending In a Time of Economic Volatility

America is experiencing economic volatility the likes of which we’ve never seen before. There is no roadmap for recovery from 26 million jobs lost in five weeks. At Elevate Credit, we serve non-prime and credit invisible borrowers whose access to credit is typically limited due to their credit history. These 160 million non-prime Americans live in a constant state of economic volatility, and as a result, we have learned how to meet their unique needs.

Like many businesses, we have been forced to make difficult decisions during this crisis and the subsequent economic uncertainty it has created. We have paused all marketing efforts and new customer acquisitions. This means fewer customers for us and the banks we support, which has impacted our bottom line, but we’ve long prided ourselves on being able to responsibly determine a borrower’s risk and ability to repay any loan they take out. If we can’t do that, we are putting our company and the non-prime community we support in a dangerous position.

The responsible course for small-dollar lenders right now is to focus on serving existing customers—those for whom we and the banks we work with can accurately assess risk. That means spending more time making sure consumers understand expanded payment options and feel empowered to choose the best option for their needs. In late March, we enhanced repayment options to provide increased flexibility, including the addition of a 60-day (or longer) self-serve deferral on all brands. Payment deferments, no late fees, and no early payoff penalties have always been hallmarks of the brands Elevate supports, and these consumer-friendly options will remain in place long after COVID.

Amid all this volatility, one might assume non-prime borrowers are relying on their already-limited sources of credit more than usual. In fact, data shows that non-prime consumers have made shrewd choices about borrowing during the downturn. Demand for small dollar loans from non-prime borrowers is at near all-time lows. According to the Center for the New Middle Class, debt-to-savings ratios, credit card balances and daily expenses are down for individuals with credit scores below 700.

Consumers have adapted by decreasing their borrowing, even in the face of extraordinary job and income losses. This is likely the result of two factors: first, the government stepped up early and provided direct relief, effectively replacing the need for a small-dollar loan for many consumers. Recent polling from the CNMC found 87 percent of non-prime consumers report receiving a stimulus check. Second, non-prime consumers are very mindful of their money, and in fact review their account balances and credit scores significantly more often than prime borrowers.

Stimulus checks along with rent and mortgage abatements may have blunted the initial impact, but eventually consumers will need other options. We share the concern that these borrowers may turn to predatory products because they feel their credit scores have left them with no choice. Unfortunately, these products do more harm than good. They have no concern for determining a borrower’s ability to repay, limited payment options, a lack of flexibility, and aggressive collection practices that trap consumers into dangerous debt spirals.

Our company is often lumped in with these predatory lenders because we serve a similar population of non-prime Americans and the cost of doing our business is high as the risk of default is much greater. The similarities end there: We give opportunity to borrowers with poor or no credit history to improve their credit scores without falling into a cycle of debt.

Our business model has always been to put the consumer first and to stand up against predatory practices. We supported the Consumer Financial Protection Bureau’s small dollar rule in its ability to repay provisions and have always determined ability to repay for all loan applicants. Elevate is proud to be one of the few lenders to focus on technologies that serve this population with respect and transparency. We help people get back on their feet with a stronger financial future than when they came to us, and in 2019, we received a 92 percent reported customer satisfaction rate.

Amid the worst economic crisis since the Great Depression, everyone deserves access to fair and responsible lending options. We must continue to protect non-prime consumers from potential years of financial insecurity caused by this crisis. Elevate will continue to be a leading example of what responsible, transparent lending to the non-prime population should look like.

Jason Harvison is chief executive officer at Elevate Credit, a financial technology company that serves the 160 million Americans who are non-prime and credit invisible.

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