Governments across North America have tried to come up with ways to restrict, rein in or prohibit payday loan stores. Non-profit organizations, anti-poverty advocates, consumer groups and think-tanks have all released reports, launched protests or lobbied their public officials to accomplish the same feat. The results have been a mixed bag thus far.
The question ultimately is: what about the private sector? What have businesses done?
Over the last year or so, some startups and small businesses in the United States have incorporated payday loans into their employee benefits package. In other words, payday loans have become a job perk for the entire workforce, which may prove helpful in today’s economy.
The idea behind this move is that when employees are facing pecuniary difficulties in their private lives then they may drag those problems into the workplace. This, according to some companies, could reduce overall productivity levels and have a case of presenteeism.
Well, one startup is joining the fray and making payday loans a perk for staff members.
For the last 18 months, Doug Farry, the co-founder of Employee Loan Solutions, has been having meetings with corporate human resources managers, chambers of commerce and public officials to outline this one important fact: a large portion of workers live paycheck to paycheck and they oftentimes turn to online loans same day in order to pay the rent and light bill.
Some may view his plight as a way to raise wages. However, he’s trying to get businesses to offer short-term, small-dollar loans, high-interest payday loans to their employees. According to Farry, employers know their workers can have financial matters clouding their minds at work.
“There’s a misperception among some business leaders that this is somehow a problem of the unemployed or homeless,” said Farry in an interview with the Los Angeles Times. “If you’re a CEO making a seven-figure salary, this concept may not register with you.”
So, how does this program work exactly? Employees log in to TrueConnect and find out if their employer participates in the platform. Once they see the company they work for on the list, they can apply for an online payday loan that ranges from $1,000 to $3,000. These payday loans would be either approved or rejected immediately and would be available to all borrowers.
Essentially, this would be an add-on to all employees’ benefits packages.
Would this initiative please some consumer advocacy organizations? Not quite. Most efforts today want payday loans to have some form of underwriting, and the TrueConnect payday loans don’t have this. For instance, many initiatives want payday loan businesses to be mandated to determine a borrower’s ability to repay. TrueConnect doesn’t have this function.
Farry dismissed this concept, saying it would deter employees borrow from their employers.
“It has to meet the needs of the borrower,” he said. “We’ve talked to borrowers, and what they say is, ‘We need to know quickly. If I need to wait two weeks for an underwriting decision, I’m screwed.'”
You may think that this would be a great opportunity for financial institutions. But many banks in North America and Western Europe remain frightened of entering the small-dollar loan business. However, many financial institutions in Asia have embraced this market.
Jeff Stein August 7, 2016
Posted In: Personal Finance