As head of the Consumer Credit and Debt team at the San Francisco-based FinTech company NerdWallet, James Zhang leads NerdWallet’s efforts to fight online predatory lending and to connect consumers with alternative resources. Previously, James was a private equity associate at the Riverside Company where he invested in business services, consumer retail, healthcare, and technology companies. He began his career as an analyst with the Firm Strategy and Corporate M&A team at Morgan Stanley. James grew up in our home state of Connecticut, and we’re grateful he could find time for a profile in The Score.
With all of the controversy surrounding payday lending, how do you think it’s possible that it still exists? And if it’s here to stay, how do you think it can be fixed to meet more consumer needs?
It is worth taking a step back to look at the overall market for lending to the low-credit or no-credit demographic. On the demand side, there are millions of consumers in this demographic who will need loans every year. The reasons that a consumer might need a loan may vary (emergency expense, covering a purchase, income shortfall, etc.), but it is safe to assume that the overall demand isn’t going anywhere.
On the supply side, one may expect that the banks, credit unions, and community banks should be able to lend to this demographic. However, these deposit-taking institutions have been placed under increasing regulation that has disincentivized higher-risk lending—namely to consumers with poor or no credit history—which led to a decline in the supply of loans despite growing consumer demand.
Payday lenders have stepped into this market opportunity. Because payday lenders do not take deposits, they have not been subject to the national bank regulators to which the banks are subject. Instead, the payday lenders are regulated at the state level, and states vary in how strictly they regulate usury. For example, the state of Georgia caps APRs at 36 percent, which means no payday lenders operate in the state. Next door in the state of Alabama, there are no caps on APRs, and that has led to a proliferation of payday lenders, with thousands of them in operation there.
In terms of what can be done, government should work to streamline regulations so that banks, payday lenders, and new innovators are competing on equal footing while still protecting consumers from harm. Nonprofits are also important players in such efforts, from providing financial education to even providing loans themselves.
In the private sector, there are many companies exploring ways to use technology to reduce costs and enable better loans to consumers. Much more can be done, and NerdWallet looks forward to partnering with such consumer-first organizations to provide safe resources to consumers.
Tell us about the latest resource on NerdWallet that allows consumers to find alternatives to payday loans.
NerdWallet’s mission is to provide clarity for all of life’s financial decisions, and payday loans are ground zero for people in true financial distress. In an effort to educate consumers about the dangers of payday loans, and to steer them in the direction of sensible alternatives, NerdWallet set out to build a free online database of alternatives to payday loans.
Consumers can come to the site and type in their zip codes to find local financial assistance for emergencies, utilities, healthcare, and more. These resources include a variety of products and services offered by nonprofit organizations that meet the consumers’ urgent need without trapping them in a debt cycle. The database initially launched in April 2016 with local alternatives in California and Texas—two states with the highest number of payday loan storefronts in the country. The work that led up to our launch was profiled shortly afterward in a New York Times feature. Today, the database has grown to include 150 resources in 45 states.
Guided by our consumer-first mission, we will continue to build experiences that help real people who have real problems. Most nonprofits don’t have the marketing resources to reach wide consumer audiences. A major goal of our work is to bridge the large gap that exists between consumers in need and organizations that can help.
Before heading into a major loan—whether it be a student loan, mortgage, etc.—what are some things consumers should prepare for in order to maintain their financial stability in the long haul?
The best thing you can do before making any large financial decision is to research all of your options. Reading everything and intimately understanding the terms you’re about to agree to are crucial to ensuring you’ll be in a good financial place in the future. Be sure you fully understand the different APR ranges offered, the range of credit scores expected, and other important factors before moving forward. Most importantly, understand the amount of the monthly payment you’re about to take on, and how long you’ll be required to pay it, and make sure you work that into your budget so you’re not scrambling to make ends meet.
A number of providers now also offer additional benefits, like a discount for setting up autopay or assistance if you lose your job. Do your homework to see what other benefits, if any, are offered by the provider of your loan. You can’t predict the future, so the safety and security that comes with a benefit like job-loss security is priceless. When in doubt, always ask.
What are some insights you’ve gained from growing up with immigrant parents that have helped shape the path you’ve chosen for yourself?
As cliché as they sound, the value of hard work and not taking anything for granted. Paying it forward is also important to me, as I wouldn’t be here without the support of many folks along the way.
What do NerdWallet’s user data and your own experiences with customers tell you consumers want or need to know about their credit scores? Have you uncovered any points of confusion or curiosity?
Well, a large number of consumers don’t actually know their own credit scores, let alone what’s inside their credit reports and which of those factors are affecting their scores. NerdWallet offers free VantageScore credit scores to consumers as well as information about their credit reports, both of which are powerful tools for consumers to understand their creditworthiness and their ability to qualify for a number of financial products.
We often find that consumers need a refresher on the factors that influence their score so we’ve developed NerdWallet content specifically around building credit. Our experts break down the essentials, payment history, credit utilization (another tricky topic), age of credit history, applications, and types of credit, in a consumer-friendly way, making it easy to understand.
We also often see consumers mistaking their credit scores for indicators of all-around financial well-being, which they are not. Since credit scores don’t consider your income, savings, or job security, they shouldn’t be considered a full measure of financial health. Your credit score is there to measure the likelihood that you will repay a future loan or credit card balance by evaluating how well you’ve handled your debts in the past.