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MENLO PARK, Calif. -- Payday loans are costly, habit-forming and often bad for consumers' financial health. Still, they've proven hard for other lenders to compete against.
Today, one of the largest-scale challenges to the industry is being mounted by Progress Financial Corp., which markets its small-dollar installment loans to Hispanic consumers. The company, which operates under the name Progreso Financiero, runs 109 stores in California, Texas and Illinois.
About two-thirds of the company's unsecured installment loans last year had annual percentage rates of 30%-39.99%, while most of the rest carried APRs of 40% or higher, according to a 2013 report filed with the California Department of Business Oversight. Those figures match up favorably to the payday loan industry, though direct comparisons are difficult because the products have different loan terms.
Since making its first loan in 2006, Progreso has lent out over $850 million. But it has yet to become profitable. In 2012, the firm lost $27.5 million, according to a report filed with the state of California.
In April of that year, Raul Vazquez, a former senior executive at Wal-Mart Stores (WMT), was hired as Progreso's new chief executive officer. Progreso's losses fell to $19 million last year, according to last year's California filing.
Progreso plans to continue growing, Vazquez said in a recent interview at the company's headquarters. "The vision that we have for the business is really to have the ability to reach the underserved Hispanic community anywhere in the U.S.," he says.
Progreso has numerous connections to Wal-Mart, and those ties have sparked questions about whether Progreso figures into the retail giant's plans in the consumer financial services realm.
In addition to Vazquez's prior employment at the Bentonville, Ark.-based retailer, a venture capital firm affiliated with Wal-Mart's founding family, Madrone Capital Partners, is the largest investor in Progreso. A Wal-Mart director, Aida Alvarez, also sits on Progreso Financiero's board, according to Progreso's website. The close proximity between some Walmart stores and Progreso locations has also attracted media scrutiny.
Vazquez spoke to American Banker about the Wal-Mart connections, Progreso's strategic plans and the expertise required to lend successfully in Hispanic communities.
Following is an edited transcript of the interview.
When a customer walks into a Progreso store, what credit options do...