One of the themes that came away from last week's Prepaid Expo in Orlando was the re-emergence of credit building products for GPR cards. In fact, eCredable, ClearNow and WilliamPaid have brought new credit builders to market already. Moreover, representatives of other companies hinted that their divisions have their own concepts in development.
The failure of Pay Rent Build Credit has meant that any mention of the idea is
immediately questioned. PRBC has draped credit building in a cloak of negativity, to the point where any new iterations of this idea must overcome the assumption that they are costly products which report to the wrong bureaus.
Nonetheless, the demand remains high. In a survey of its customers, NetSpend found that no opportunity interested people more than finding a way to repair or develop their credit scores.
Part of the change could be the result of some regulatory clarity. With the announcement in January by Florida's Attorney General of a settlement of claims by consumers that they were not advised of the true value of credit building products, companies now know what counts as a transgression.
Florida Attorney General reached an agreement with NetSpend, UniRush, AccountNow, First Data and Green Dot to require future products to include disclosures about the ability of any credit builder to actually restore a borrower's credit profile. As well, the defendants agreed to pay a total of $115,000 to a Florida branch of Junior Achievement.
Building credit with a payment have never been easy. The bureaus have built their models on how people handle credit. They make their money by designing formulas with predictive power. A better prediction means more respect and probably more demand for their goods. Payments data has been around for a long time, so it's very likely that the bureaus are skeptical of its value. By the rules of ECOA, they have to accept any information provided to them by a consumer, but there is no requirement that they incorporate that information in to their analysis. Put simply, all they have to do is open the letter.
Their reasons are several: for one, it is hard to feel secure about the reliability of information that is volunteered to them by a consumer. No one is going to send in evidence that they were late on their utility bill three times in the last year. Even if the mechanics are changed to route a report from a payee to the bureau, it still becomes problematic. For one, landlords have enough to do without filling out more paperwork. Finally, there is the issue of cost. Someone has to be paid for the expense of doing this work.
eCredable: Direct to the Lender
eCredable creates a direct relationship with lenders to give their customers a chance to qualify for auto, mortgage, and credit cards. The product is layered with a GPR card. While eCredable does not report to a bureau, it does provide a link to credit. As such, it does satisfy the desire for credit while opening the door to an account whose performance will go directly to all three bureaus.
eCredable makes money on the back-end through lead referral fees to a group of specific lenders. As the names suggest, Churchill Mortgage provides home loans and RoadLoans provides car loans.
Here is the basic process:
- Consumer enters their bills into eCredable's online portal. He or she indicates the purpose of each payment - rent, utilities, cell phone, et al. eCredable wants recurring payments; incidental payments at drug stores and the grocery store are irrelevant.
- eCredable outlines a monthly budget for the account holder. The customer can ask to be reminded to pay a bill.
- The customer pays their vendor directly. Then the customer self-reports that he or she made the payment.
- eCredable inputs those payments into a formula that produces a five-category credit report with grades ranging from A to F (no "e").
- Once a consumer's AMP score reaches "A" or "B," then he or she can qualify for a loan. With a car loan, the rates are pre-determined: 11.99 percent for an "A" customer and 17.99 percent for those with a "B."
- At this point, eCredable verifies the payment records on the account. In order to offset those costs, eCredable charges an underwriting fee. This is the only fee paid by the consumer. Steve Ely, eCredable's CEO, says that the dealers (CarMax) will ultimately pay the fees charged by his company to verify payments.
There is a tradeoff with eCredable. While it will not improve a person's score with the three bureaus, it is set up to give them a chance to get credit. But in the end, consumers will tell us if this is a better outcome. For now, eCredable has less than 1,000 accounts. In the near term, that number is likely to grow because the company has reached agreements with several national prepaid debit card program managers to offer the product on their accounts. Moreover, getting a loan from RoadLoans or Churchill Mortgage is by no means a dead end and instead more of an opening into the wider marketplace.
The fact that eCredable can generate revenue for its services gives it promise, and the fact that its largely provided at no cost to the consumer makes it attractive. If Ely's estimate that his company can gain tens of thousands of new customers in just the next 12 months through new partnerships with GPR program managers, then this product could have staying power in the marketplace. To do that, though, it will have to show that it works to the GPR companies that provide eCredable's customer base.