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.
Payday loans give millions of Americans quick cash but bleed them dry with triple-digit interest rates and hidden fees. These loans have moved away from the corner storefront, with over a third now originating online. Search volume for payday loans is staggering, and people who search for "payday loans" and "need cash now" are currently served with unsavory resources and options that don't serve their long-term financial interests.
What's the appeal of a payday loan? They're close to home, fast, and convenient. As a result, we recognized that technology plays a critical role in protecting consumers from this industry that now generates $4B a year in online revenue alone. In an effort to educate consumers about the dangers of payday loans and steer them in the direction of sensible alternatives, NerdWallet set out to build a free online database of alternatives to payday loans.
Guided by our consumer-first mission, it was important for us to build out additional channels that would help real people who have real problems. Most nonprofits don't have the marketing budgets to reach wide consumer audiences. A major goal of this campaign is to bridge the large gap that exists between consumers in need and organizations that can help. Additionally, we've made it a priority to scale this program at no cost to both users and organizations providing resources.
In March 2015, NerdWallet published a study comparing the high costs of payday loans to personal loans. A week later, the Consumer Financial Protection Bureau announced that it would soon propose new rules to increase regulations on the payday lending industry, and President Obama hosted a roundtable about these regulations in Birmingham, Alabama.
NerdWallet recognized the importance of this issue on the national stage and so we shared our study with the Alliance for Responsible Lending in Alabama (ARLA), a group that advocates for fair lending practices in the state. The Alabama National Association for the Advancement of Colored People (NAACP), a member organization in ARLA, was interested in the study and invited us to Birmingham to join a training session about alternatives to payday loans.
While in Alabama, we met with many of the alliance's member organizations, listening and learning about how payday loans impact their communities. We heard about local alternatives like Lighten Up, a joint program through Gateway Financial Freedom and Alabama Central Credit Union, that help consumers in need. We realized that none of these alternatives were easy to find online.
That's when we pitched the idea of a national database filterable for local alternatives, and all the community organizations agreed that this tool would be helpful to a massive consumer audience. We looked online, and there was nothing of its kind. With 5 million monthly visitors to our site, we were well-positioned to be the central source of information about these safe alternatives. We realized that we have the online reach to promote nonprofit programs that traditionally receive little attention or awareness from consumers, who are instead inundated by online payday lenders when they turn to Google for their quick cash needs.
A small team eagerly built the first prototype of the database during our next NerdWallet Hackathon, a time when employees work rapidly on new project ideas. We spent three days on the original infrastructure, winning support from our executives to fully and immediately fund the project. We then dedicated a bigger team to the tool, reaching out to national and local organizations to populate it with payday loan alternatives and to spread awareness to communities in need.
Since payday lenders have aggressive marketing budgets, we have had to fight for the marketing share of voice. In less than half a year, we have over 140+ resources listed in over 30+ states. We're working to grow the database, as well as supplementary tools, every day.
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 after in a New York Times feature. Today, the database has grown to include 140 resources in 34 states.
Consumers can type in their zip code to find local financial assistance for emergencies, utilities, healthcare, and more. These resources come from a variety of products and services offered by nonprofit organizations that meet the consumers' urgent need without trapping them in a debt cycle. Though any product listed on the tool will always fall below the 36% APR cap recommended by the CFPB, almost every product currently offered is a 0% APR grant or loan.
The database receives hundreds of daily users, and we've received positive feedback from the participating nonprofit partners that this tool has helped them to better engage with an online audience. In its eventual end state, NerdWallet's tool will connect consumers with local nonprofits, credit unions, small banks, charities, and responsible online lenders in all 50 states.
People need to have a source of financial assistance and education that doesn't trap them in a debt cycle. Now when consumers search for "payday loans" on Google, they will find better alternatives. With this tool, NerdWallet is empowering consumers to steer clear of toxic debt, find safer alternatives and get on the right path to improve their financial lives.
