A new guide on the website NerdWallet hopes to redirect as many people as possible away from the sky-high interest rates of payday loans and toward nonprofit lenders or organizations that offer short-term assistance.
Yale. Morgan Stanley. Private equity.
James Zhang has collected plenty of prestigious stamps on his résumé in the nine years since he graduated from high school and pursued a career in high finance. But he’s also an immigrant, the grandson of an illiterate rice farmer who did not have indoor plumbing until the late 1990s.
So perhaps he was the most likely person to find, then shame the many state pension funds and university endowments that invest through private equity in the payday-lending industry. It is an industry that has millions of struggling Americans paying sky-high interest rates for what are supposed to be small loans.
Due to his efforts, New Jersey rid itself of a stake in the industry earlier this year. And through a new guide on the website NerdWallet, where he now works, Zhang hopes to redirect as many people as possible who are seeking these loans.
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NerdWallet is a natural home for these efforts for one reason in particular: The people who work there are search-engine ninjas. The company posts content and guides aimed at attracting people looking for, say, a new credit card. Search for “best rewards credit cards” on Google, and you’ll find the company right away, in spots below the ads on the first page of results that would cost piles of money if NerdWallet had to pay for them.
The San Francisco company makes money through referral fees when people sign up for new credit cards and other financial services through its site.
Zhang said he hoped to put the company’s anti-payday-lending efforts in top search-engine spots, too, though he landed at NerdWallet almost entirely by chance.
His parents, both chemists, brought him to the United States from China when he 2 years old, after a professor at Northwestern University invited them to work and study there.
The family eventually moved to Connecticut, where they entered the middle class, then the upper middle class.
Zhang said his father had known as a boy what it meant to go hungry, but his parents’ frugality kept him from ever having to go without. Still, he worked as a baby-sitter and a busboy, while still achieving enough in the classroom to go to Yale.
After college, Zhang spent two years at Morgan Stanley on a team that analyzed the firm’s own strategy and transactions.
He followed that up with two years in private equity, where firms use money from high-net-worth individuals and others to invest in companies. Eventually, they would try to sell those companies at a profit and put money back in the pockets of the now higher-net-worth individuals.
In 2015, he got a LinkedIn message from a recruiter at NerdWallet, the first time he’d heard of the company. But when he learned more about it, the move made perfect sense to him.
“I spent two years helping the bank make more money and two years helping high-net-worth people make more,” he said. “For the foreseeable future, I could help everyday consumers think smarter about their money.”
He was hired to help think through the company’s approach to student and personal loans.
The site already had some information about the perils of payday loans. A representative from the NAACP in Alabama had noted NerdWallet’s interest in the topic and invited Zhang to speak at a conference.
Meeting people who were up to their ears in such loans radicalized him. It also got him thinking. Somebody had to be investing money in these lenders, given how large they had become. But who were they?
He found a private-equity firm called JLL Partners had put money into ACE Cash Express, a payday lender that had just paid $10 million in refunds and penalties in a Consumer Financial Protection Bureau enforcement action. And who was investing in JLL? University endowments and state pension funds, including the one in New Jersey, where payday lending is illegal.
While the investments themselves didn’t violate rules, Zhang said he didn’t think financial-aid recipients who benefit from endowment earnings and retired state workers would feel good about it. So he and his colleagues passed their findings on to the news media.
Beverly Brown Ruggia, an organizer with New Jersey Citizen Action, first read about it in Fortune. “I was incredulous,” she said. Her organization and several other policy, advocacy and faith-based groups banded together and helped persuade the state to get out of the investment.
Next, Zhang turned to figuring out how to keep more consumers away from the ACEs of the world. He and his colleagues knew from a Pew Charitable Trusts report on payday lending that about one-third of borrowers got their loans online and tended to pay more when they did.
NerdWallet set about trying to attract them to its site first.
A small experiment intended to draw borrowers to the site drew hundreds of clicks from Google each day from people looking for cheap payday loans. Lenders approached NerdWallet with an offer to pay it $60 in commission on a $200 loan, knowing that many borrowers end up repeatedly rolling their loans over into new loans and paying effective annual interest rates well into the three figures.
“I asked them whether they would take the $60 and give that discount to the borrower, but they wouldn’t,” Zhang said. “Their business model is based on repeat customers, so if someone repays their loan, they don’t make money.”
Eventually, NerdWallet settled on a pro bono effort whereby it would earn no commission and send consumers only to nonprofit lenders with lower interest rates or to governmental organizations that offer short-term assistance. It began with links to 44 entities in California and Texas. The company plans to add more over time.
While NerdWallet will make no money in the short term from its payday-lending redirection, it is well aware that people in financial trouble now could be customers next year.
“If we do this well, we can rehabilitate people in a tough spot,” Zhang said. “In six months, when she needs a credit card or wants to start investing, she’ll come back. That’s the best type of bet that we can make.”