BELCOURT The Turtle Mountain Band of Chippewa has teamed up with a financial service company run by a former Google executive to launch an online lending business.
The tribally-owned BlueChip Financial opened an office in Belcourt July 5 with 12 employees. Additional hiring is planned as business grows.
BlueChip Financial is offering a product called Spotloan, a flexible installment loan for people around the country who have difficulty obtaining traditional bank loans. People can use the online service to borrow between $300 and $800 under current loan limits for three to eight months. But loans are not available online to North Dakota residents under current banking regulations.
Business support is being provided by ZestFinance, a Los Angeles company founded by Douglas Merrill, former chief informations officer with Google. Co-founder and chief risk officer for the company, Shawn Budde, served as senior credit officer at Capital One.
Tribal chairman Merle St. Claire said the new business will bring a variety of benefits to the Turtle Mountain reservation.
"It's going to create jobs that we are happy to have on the reservation," he said. "We just don't have employment opportunities so this is going to create one more avenue for people to go to work."
The tribe also looks for the business to generate about $100,000 a month to support other tribal business ventures and social programs. One program to benefit will be an emergency program that assists tribal members with travel, lodging and food while seeking distant medical care.
St. Claire said the tribe also wants to use revenue to address the homelessness issue.
"It's vast and extensive," he said. "The whole state of North Dakota is having an issue with housing. At Turtle Mountain, we have been in this situation for the last 25 years."
The Turtle Mountain Band of Chippewa isn't the first tribe to get into lending, but often those businesses have involved payday loans. The Federal Trade Commission officials have been investigating some non-tribally owned companies suspected of partnering with tribes to avoid federal and state consumer protection laws. Tribes operate under their own banking laws.
St. Claire said BlueChip Financial will follow the best practices of the Native American Financial Services Association. St. Claire serves on the association's board.
Still, some members of the Turtle Mountain tribe also have voiced concern over BlueChip Financial's financial backing and the high-interest rates of the loans.
The average interest rate is 300 percent, which is as cheaply as loans can be provided to borrowers who are considered subprime due to risk, said Merrill, chief executive officer for ZestFinance.
"They need the credit. Credit is an important thing. The average customer is paying rent or utility bills or car repair," he said.
Spotloan differs from payday loans in structure and cost.
Payday loans are small, short term loans, typically for two weeks. Borrowers pay a fee that may be in the range of $15 to $30 for $100. Fees can calculate to annual interest rates from 390 to 780 percent, according to the Consumer Federation of America. If unable to pay off the loan, borrowers often can extend the payment period or roll over the loan for an additional fee.
Merrill said the average payday loan borrower rolls over a loan seven to 10 times before paying it off. On a $500 loan, a borrower could end up paying $900 in fees in addition to the principal, he said.
BlueChip Financial's Spotloan is an installment loan with a longer term than payday loans. Borrowers determine which installment plan works best for them, and they receive a schedule showing when payments will automatically come out of their accounts. There is no fee for missing a single payment, but relationship managers the title of employees in Belcourt work with the borrowers to re-establish workable payment schedules.
When a borrower makes a payment, the money goes toward interest and principal. A $500 loan paid off in five months would cost $400 in interest.
Merrill said ZestFinance is beginning to report loan information to credit bureaus, which payday loan companies do not do. Reporting to credit bureaus benefits responsible borrowers, who can gradually build their credit ratings.
"Customers will improve their credit scores rapidly," Merrill said. "I actually want to lose customers. I don't want to lose customers to payday loan companies where they are paying twice as much, but ideally, through working with us and working with other credit-repair organizations, the people will leave us and be served by traditional banks."
The industry estimates more than 60 million Americans lack access to conventional bank credit.
ZestFinance, formerly ZestCash, recently introduced a new set of underwriting models that, in combination with its expanded analytics, is designed to expand credit to 25 percent more people and increase repayment by 20 percent. ZestFinance licensed its technology to Spotloan.
Eleven relationship managers working in Belcourt are independent contractors with a third party, Working Solutions. The typical starting wage is $13.50 an hour. Another employee is providing consulting services.
The company is operating in a former meat market building that it continues to renovate.
St. Claire said the partnership with ZestFinance developed after he met company representatives at a business summit. The company's family-oriented focus and desire to not just create jobs but develop a relationship with the tribe opened the door to more talks, he said.
"They want to be part of our community and they are working hard to build relationships with us," St. Claire said.
ZestFinance is donating $35,000 to help complete the Melvin Lenoir Memorial Dialysis Center in Belcourt and $35,000 to assist in the completion of the Center of the Earth Cultural and Community Center in Dunseith.