Success Stories. Justine PETERSEN: Financial Capability Institute.

Transcription

1 Success Stories Justie PETERSEN: Noprofit microeterprise orgaizatio offers secured credit card to help cliets build credit.

2 Backgroud Justie PETERSEN (JP) was established i 1997 i St. Louis to help low- to moderateicome people build assets ad create edurig chage by coectig them with istitutioal resources. As a leader i microeterprise developmet ad credit buildig, Justie PETERSEN emphasizes credit buildig as a empowerig asset. Through oe-o-oe couselig ad ogoig cliet maagemet, JP provides microeterprise ledig, homeowership services, credit-buildig products, ad fiacial educatio. Meetig Customers Where They Are JP emphasizes kowig their customers ad meetig them where they are. The orgaizatio has developed products ad services tailored to meet the fiacial services eeds of its target populatio. I , Justie PETERSEN egaged two St. Louis Uiversity professors to coduct a outcomes study of its credit-buildig work. The study revealed several thigs about JP s cliet demographics: Eighty percet receive less tha 80% of the media icome. Eighty-oe percet are miorities. Sixty-eight percet live i female-headed households. Their media credit score is A GLANCE Noprofit Orgaizatio: Justie PETERSEN provides microeterprise ledig, homeowership services, credit-buildig products, ad fiacial educatio. Fiacial Parter: Citi Baamex Product Offerig: Baamex USA Secured Card Value propositio: Provide uderserved cosumers with a high-quality creditbuildig product alog with fiacial couselig to improve credit scores ad icrease fiacial capability. The results led to several programmatic chages ad ew products itroduced through Great Rivers Commuity Capital, a wholly owed CDFI subsidiary of Justie PETERSEN. I helpig low- ad moderate-icome families to access affordable mortgage products, staff oted that may cliets have low credit scores ot because of egative credit but the lack of good credit. That led to the Credit Builder Loa, which Justie PETERSEN itroduced i September 2006 to put active lies of good credit o credit reports. The Credit Builder Loa allows cliets to establish or re-establish credit ad become more competitive i the maistream fiacial market. Justie PETERSEN bega reportig o these loas to TrasUio i 2006 ad to Experia i 2007 through Credit Builders Alliace. Notig the positive impact of the 12-moth credit builder loa o cliet credit scores, Justie PETERSEN decided to explore istallmet products with a revolvig lie of credit that could help cliets build loger-term credit. Before 2009 i the St. Louis market, there was o secured credit card with flexible uderwritig ad a low miimum deposit. JP approached Citi to fill the void ad Citi ethusiastically embraced the cocept. JP partered with Citi to distribute the Baamex USA (BUSA) secured card. The card is desiged to help boost cliet credit scores ad trasitio cliets with o-time paymets to a usecured card. 2

3 Distributig the RIGHT Fiacial Product Makig o-time paymets o active accouts reported to credit bureaus each moth is the most importat factor i buildig credit. A secured card allows cliets to demostrate a loger trajectory of positive o-time paymets ad subsequetly improve their credit scores. The challege with may secured cards o the market is that the cliet must be deied usecured products i order to qualify for a secured card. Miimum deposits are aroud $500, which ca be a obstacle. The Baamex USA card, by cotrast, has a lower security deposit ad more flexible uderwritig. Whereas some fiacial istitutios dey applicats eve for secured credit cards because of credit blemishes, BUSA has provided traiig o uderwritig guidelies so that the applicatios submitted through JP are almost always approved. This streamlied process leads to a more positive cliet experiece. Citi has also ivested i the developmet of a web-based portal a oestop shop that ehaces the cliet experiece. Some key product features iclude: Oe fiacial educatio class is required to ope a accout (ote: this is required by JP, ot BUSA or Citi). $300 security deposit. 2% iterest o the savigs accout % iterest rate o purchases. $35 aual fee (reimbursed by JP if cliet pays o time for 12 moths ad takes two 1-hour fiacial educatio modules). After oe year of o-time paymets, Citi Baamex will review cliet file ad may switch the cliet to a usecured credit card, with a higher credit limit. Cliets who are switched to a usecured card will receive their $300 deposit back plus iterest. $15 late paymet charged (after 15 days late). The Baamex USA secured card is aliged with the orgaizatio s broader missio of credit buildig ad is a atural extesio of its existig product suite. The secured card is aother way for JP to egage with cliets o a loger-term credit-buildig program. As credit profiles improve, JP could exted mortgage or busiess credit to these cliets. The secured card also gives JP a platform for relevat, actioable, timely, ad ogoig guidace o credit card best practices to build cliets fiacial capability. 3

4 Cliet Process 4

5 Value Propositio: What s I It For Them? Justie PETERSEN Citi Cliets Program aligs closely with the orgaizatio s missio of credit buildig. Product ad services to the uderserved ad good corporate citizeship Access to oe-o-oe credit buildig couselig Tagible product that egages customer to commit to log-term credit-buildig program with JP Icreased peetratio ad reach Resposible access to safe ad affordable capital, with the opportuity to build credit Alterative reveue stream for Justi PETERSEN Expasio of footprit Access to better fiacial products ad services as credit profile improves Iovative fiacial educatio webiar platform with miimal expese ad ability for scale CRA eligibility Most competitive product for this populatio i the St. Louis market ad iovative card features (low security deposit, iterest rates, late fees, guarateed approval to usecured card after o-time paymets) Partership with a established brad Cross busiess partership Relevat, timely, ad actioable fiacial educatio compoet to lear credit card best practices 5

6 Elemets of a Wi-Wi-Wi Partership Leveragig Noprofit Capacity ad Expertise Providig Fiacial Services JP has a log history of providig fiacial services ad fiacial educatio to low- ad moderate-icome people i St. Louis. The orgaizatio has built a strog, reputable brad that cliets kow ad trust. Distributig a secured card product, i partership with Citi, is a atural extesio of its existig work. JP couselors are already traied to review cliet credit reports ad uderstad the value of coectig cliets with credit-buildig products. They also have experiece providig fiacial educatio ad guidace to cliets aroud the use of fiacial products. JP is takig a leadership role i sharig this expertise with other oprofits (through the Chicago Credit Buildig Coalitio ad the Aspe FIELD pilot) ad buildig a olie portal to allow other oprofits to distribute the Baamex secured card at scale. Roles ad Resposibilities The partership betwee JP ad Citi provides value for both orgaizatios ad the cosumer. They have egotiated roles ad resposibilities that take ito accout each other s stregths ad weakesses. For example, JP couselors reviewig credit reports will determie if the cliet would beefit from a secured card. Couselors also help applicats complete the applicatio ad uderstad the terms ad coditios. Fially, the JP fiace departmet collects the applicat fees ad deposits ad trasfers them to Citi-Baamex alog with the applicatio. Baamex processes the applicatio ad reviews the cliet s record at 12 moths to determie whether to upgrade to a usecured card. Because Citi recogizes JP s value i helpig cliets uderstad the product ad complete the applicatio, JP is compesated for each applicatio submitted to Baamex. Avoid Product Customizatios JP has followed best practice of requirig o product modificatios to distribute the secured card. Noprofits ofte desire customizatios from their parter, such as lower fees tha other products available i the marketplace. These customizatios ca be costly ad cause sigificat operatioal challeges to both the provider ad the oprofit. Sice JP is distributig the same product that is available to the geeral market, it is seamless to review ad process applicatios. 6

7 Maagig Expectatios The biggest partership challege for JP has bee maagig Citi s expectatios, especially aroud achievig scale i a short time. Achievig scale quickly with a ew fiacial product ca be challegig for a oprofit, as it takes time to implemet ew processes, trai staff, ad execute well. Although JP has ledig experiece, the orgaizatio still had to implemet ew processes to get cliet applicatios to Baamex. The partership has also tested the patiece of JP staff, who are used to gettig approvals ad movig forward quickly. At a major corporatio, every chage to the product or process meas avigatig layers of legal ad compliace. JP has leared from implemetatio ad modified the process. JP is also makig strog progress o scale through the ASPEN pilot ad Chicago Credit Buildig Coalitio. The Numbers Story (as of May 2012) 410 cards issued to date (secured ad usecured) 50 poits Average icrease i cliet credit score as a result of secured card, average 7 moths after opeig (cotrolled for zero score) 147 maximum poit icrease i credit scores 32 cliets deied to date Fraud ad ChexSystem activity is the primary reaso for deial (JP caot pull cliet ChexSystem reports.) 91.6% cliets have ever paid late 2 FTE dedicated to credit buildig Aual operatig cost of JP s credit buildig program: $83,000 Reveue sharig: $25 per card Timelie of Major Milestoes 7

8 I Their Ow Words Sheri Flaiga-Vazquez, Chief Operatig Officer at Justie PETERSEN 1. What have bee the biggest lessos leared from this edeavor? O the couselig side, we leared the importace of keepig our messagig simple ad direct. May of our cliets were ufamiliar with secured cards ad cofused them with prepaid cards, which have differet rules. We itroduced our requiremet of two fiacial educatio modules prior to card opeig after the iitial pilot phase to make sure the cliets fully uderstood how to use the card prior to opeig. We also simplified our messagig to focus o key poits. O the program developmet side, we ve gaied a better uderstadig of the oprofit/ fiacial istitutio relatioship ad have bee able to brig forth the best of each to create a awesome product ad process for low-icome, uder-baked idividuals. 2. Why does JP combie credit-buildig products with fiacial educatio? Does this combiatio jeopardize your credibility with cliets? JP pairs credit-buildig products with fiacial educatio to demostrate to cliets how their behavior of makig o-time paymets impacts their credit profiles. Sice we kow that recet o-time paymets have the greatest impact o the credit score, opeig a ew lie of credit ad makig o-time paymets is the most efficiet ad effective way to raise the credit score. At the first follow-up couselig after the cliet has opeed a ew lie of credit ad made several o-time paymets, the couselor s credibility is immediately raised as the credit score is raised. This cliet success leads to a more productive couselig relatioship ad further egages the cliet. 3. What has bee the geeral cliet respose to the secured card offerig? Are there product features that resoate more tha others? Eighty-ie percet of cliets that we recommed the product to apply for it. After creditbuildig couselig, most cliets have iteralized how importat active lies of credit are to buildig good credit ad are iterested i pursuig. The primary value propositio of the card is that JP is able to offer the card o-site ad walk the cliet through the process. Cliets also appreciate the low miimum deposit. 4. What messagig or marketig has worked best to gai cliet iterest i the product or esure that they are usig the product well? JP has leared to keep it simple with messagig ad has focused o emphasizig to 1) make all mothly paymets o-time, 2) keep the balace low, ad 3) use the card to build credit, ot cosume. 5. How do credit couselors kow whether a cliet is ready for a Baamex USA secured card? JP trais couselors to idetify cliets with thi credit files that will most beefit from the secured credit card. JP couselors complete a household budget with each cliet to make sure that she ca afford to make a mothly paymet o the accout. I additio, cliets atted two fiacial educatio modules o credit prior to opeig the secured card. 8

9 6. I your experiece, what has worked best to trai your staff, get them to believe i the value of the program ad feel comfortable sellig products? To be effective, staff has to iteralize that credit is a asset ad that addig small lies of credit to thi credit files is the most efficiet ad effective way to build credit. Oce staff sees the impact of oe or two small lies o icreasig the credit score, they uderstad ad wat to share it with the cliets. 7. Were you hesitat at ay poit about a exclusive partership with Citi as opposed to establishig several parterships ad lettig cliets choose? If so, how did you mitigate those cocers? We face a similar issue with our housig work, where our market has oe clear best product for most low-icome buyers. We educate our cliets that there are other products i the market. However, it does t make sese for us to distribute more tha oe product ad have determied that this is a very good product for our cliets. We cotiue to moitor other available products to make sure that the BUSA product is competitive. 8. What happes whe cliets are tured dow for the BUSA card? I istaces of recet bakruptcy, cliets do ot qualify for the Citi card ad we refer to a secured card with a higher miimum deposit. Prior to the etry of the BUSA card, the St. Louis market lacked a affordable secured credit card with a low miimum deposit. Citi has take a huge leadership role i brigig this card to market ad allowig ot-for-profit orgaizatios to distribute. 9. Did you have to overcome ay legal or regulatory barriers to distribute the secured card? If so, how (e.g., Kow Your Customer/Customer Idetificatio Program, privacy regulatios, etc.)? Oe beefit to workig with a large corporatio is the depth of their legal ad compliace team. 10. What advice would you give a oprofit iterested i goig dow this path? A few thigs to thik about are: a. Do you curretly offer credit-buildig services or are you willig to ivest the time ad resources to offer them? b. Do cliets (ad staff) uderstad the importace of credit buildig? c. Do you have the ability to pull credit reports? d. Are staff comfortable with sellig products? e. What secured credit card products are i the marketplace? Are you familiar with their terms? f. Are you willig to icorporate credit buildig i all your core programs? g. Are there mechaisms to assist cliets to build/acquire their security deposit? 9

10 Cliet Success Stories Mr. Barber: from a credit score of 557 to 639 A barbershop ower i East St. Louis, Illiois, applied for a micro-loa i October His credit score was 557. He had $4,664 i collectios, a car loa that he was payig o time, ad four payday loas that he was also payig o time. He was usig the payday loas to fiace his busiess, ad his ultimate goal was to access fiacig to expad his busiess. The JP couselor explaied that short-term payday loas do t stregthe the credit profile ad have a high iterest rate. Because of lack of collateral, JP could ot origiate a microloa, but the customer was iterested i credit buildig. JP worked with him to create the followig pla to improve his credit profile: 1. Establish active lies of credit. The customer opeed a JP credit-buildig loa ad a Baamex USA secured credit card i October Dispute iaccurate iformatio. The largest collectio ($2,000) was icluded i the customer s 2000 bakruptcy but still appeared o his credit report. The couselor helped him dispute the error. I September 2010, the customer had made paymets o his JP credit-buildig loa each moth ad was keepig his balace low ad payig o time to his secured credit card. All his other collectios had bee settled or paid, ad the disputed accout showed a zero balace. His credit score had rise to 601. I November 2010, the customer applied for a JP micro-loa to purchase additioal chairs for his barbershop. Sice he had established a paymet history, JP origiated the $3,000 micro-loa eve though he did ot have collateral. By February 2011, the customer s credit score had rise to 639. All of his accouts were reportig curret, ad his balace o his secured credit card was low. A year later, the customer closed o his first home loa ad received a $7,500 micro-loa from JP (havig paid off his first micro-loa). The customer still has his Baamex USA secured card. 10

11 Cliet Success Stories Mr. Haul: from a credit score of 537 to 665 Mr. Haul applied for a JP micro-loa for his haulig compay i March His credit score was 537. He had $2,300 i collectio debt, a $1,300 civil judgmet, ad o active lies of credit. JP couselors created the followig pla to help him improve his credit profile: 1. Establish active lies of credit. I August 2009, the customer borrowed a $5,300 microloa ad opeed a Baamex USA secured credit card. He was advised to pay both lies of credit o time ad keep his balace o his secured card low. 2. Settle collectio debt. The couselor discussed how to settle collectios for 50% of the balace owed. By September 2010, his credit score had rise to 592. He was payig both lies of credit o time but had ot yet settled his collectio debt. By February 2011, he had settled all collectios ad the civil judgmet. His JP micro-loa ad secured credit card had bee paid o time for more tha 16 moths. The customer s credit score is ow 665. He has bee approved for a FHA mortgage loa ad is lookig to purchase a home. 11

12 About the The (FCI) website is a olie resource from the Ceter for Fiacial Services Iovatio (CFSI), developed to empower oprofits to improve the fiacial lives of their cliets with highquality fiacial products. This is a oe-stop olie resource to help oprofits successfully itegrate a highquality fiacial product ito their service offerig. FCI offers iteractive tools to help oprofits: 1. Lear More Lear about the fiacial capability approach, why it matters, ad how to apply it i their orgaizatios to improve the fiacial lives of cliets. 2. Self-Assess Determie whether they are well-suited to distribute fiacial products through a self-assessmet tool that ca be take multiple times ad shared with others i the orgaizatio. 3. Use Our Tools Take the right ext steps usig the customized results of the selfassessmet as a road map. The results of the self-assessmet will guide users through exploratio of the right the tools ad resources. Cotact us: Sarah Gordo, Vice Presidet, Advisory Services & Noprofit Ivestmets Moica SaMiguel, Program Maager, Advisory Services ficap@cfsiovatio.com Developmet for this site was made possible thaks to a geerous grat by the Citi Foudatio. l 2012 Ceter for Fiacial Services Iovatio ALL RIGHTS RESERVED. This documet cotais material protected uder Iteratioal ad Federal Copyright Laws ad Treaties. Ay uauthorized reprit or use of this material is prohibited. No part of this documet may be reproduced or trasmitted i ay form or by ay meas, electroic or mechaical, icludig photocopyig, recordig, or by ay iformatio storage ad retrieval system without express writte permissio from the Ceter for Fiacial Services Iovatio.