Some companies offer a new benefit: payday advances and loans

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A growing number of companies are helping workers access payday advances and loans, reflecting concern over the impact of money problems on productivity levels and worker retention.

Employers, including Walmart Inc.

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and Pima County, Arizona recently added these services. The goal is to help cash-strapped employees, many of whom have damaged credit, to cover unforeseen expenses without resorting to costly debt.

“Employers have come to realize that a majority of workers find it very difficult to get by, let alone move forward,” said Sophie Raseman, head of financial solutions at Brightside, a Comcast company. Corp.

co-founded which provides financial advice to workers and tests payday loans with certain corporate clients.

Workers generally access online services. Payroll advance programs typically give employees the ability to speed up a portion of their next paycheck for a sum that often amounts to a few dollars. Loans are typically a few thousand dollars and are repaid by automatic payroll deductions over a few months to a year or more. Approval and interest rates, typically 6% to 36%, often depend on factors including the borrower’s credit rating.

Since departments deduct refunds from workers’ paychecks before the money goes to their bank accounts, default rates tend to be low.

According to an Employee Benefit Research Institute survey of 250 employers last year, 12% offer accelerated pay. The same percentage offers short-term loans repaid by payroll deductions. An additional 4% and 6% plan to add services, respectively.

Lauren Saunders, associate director of the National Consumer Law Center, said payroll advance services could create “a cycle of chronic early spending.”

Businesses, meanwhile, are reacting to data that indicates American workers are under financial stress. While incomes have stagnated for many, spending on items such as health care and education has increased.

Employers are concerned about the impact on productivity and turnover. Research by Todd Baker, a senior researcher at Columbia University’s Richman Center for Business, Law and Public Policy, looked at 16 companies in the UK that offered payday loans and found that borrowers had, on average, an annualized attrition rate 28% lower than the rates for all employees.

Mary Haynes, managing director of Nazareth Home, which operates long-term care facilities in Louisville, Ky., Said the company began offering expedited paychecks through PayActiv Inc. two years ago after it realized that many of his employees were incurring late fees and using payday. ready. PayActiv works with 500 employers, including Walmart.

Of the 400 employees in Nazareth, 338 are registered with PayActiv and 280 use it regularly, Ms. Haynes said.

The benefit attracts workers and saves Nazareth money, Haynes said, by “virtually eliminating” her use of a recruiting agency that some workers preferred because the agency provided access to cash advances. on salary.

Typically, payday loans charge $ 15 for every $ 100 borrowed. Bank overdraft fees often cost around $ 35. In contrast, PayActiv charges $ 5 per pay period when an employee uses the service, which also includes online financial advice and bill payments.

Some point out that a $ 5 fee can equate to a high annualized percentage rate on a small, short-term loan.

State officials also have concerns. Regulators in 10 states, including New York, are investigating whether payroll advance services violate state banking laws. The companies that offer this service claim that they give employees access to the money they have already earned and are not lenders.

Robyn McGuffin, a drug technician at Nazareth Home, says PayActiv has helped her avoid late and overdraft fees of up to $ 80 per month.

Ms McGuffin, 36, says she typically uses PayActiv once or twice per pay period, usually for bills due before her next paycheck arrives. The Louisville resident also used it to buy a new car battery and cover her fiance’s share of household expenses when he was temporarily out of work due to a medical emergency.

Avoiding late fees, Ms McGuffin, who earns around $ 16 an hour, said she was able to splurge on a restaurant meal or an occasional toy for her daughter. “I don’t panic so much about bills because I know I have the ability to access money if I need it. “

Some employers are pairing accelerated loans or paychecks with online tools to help workers budget, reduce debt, and rack up emergency savings.

Walmart introduced payday advances in late 2017. Employees are using less payday loans and bank overdrafts, said David Hoke, who oversees health and wellness.

Employees pay $ 6 per month to use PayActiv. It’s integrated with an app called Even, which also includes a budgeting service that prompts users to save overages. Walmart covers the cost for one month per quarter and caps the amount workers can accelerate to 50% of salary. Of the company’s 1.4 million workers, 380,000 are frequent app users, Hoke said.

For those who need larger sums, some employers offer loan services that typically advance up to $ 5,000, with repayments deducted from workers’ pay checks over a period of four months to a few years.

Lender Kashable approves “over 60%” of applicants, said co-CEO Einat Steklov. It takes into account factors such as length of employment and credit scores.

The average user has a risky credit rating and pays an annual interest rate of around 20%, Ms. Steklov said. Kashable’s default rate is 5%. Borrowers who quit their jobs before paying off in full usually turn to automated bank transfers.

Pima County, Arizona, has offered its 7,000 employees Kashable loans since 2016. Nearly 500 workers, many with credit scores below 650, have borrowed an average of $ 2,000 each, the supervisor said. of the county, Richard Elías.

Mr Elías said nearly half of those polled said they used the loan to pay off higher-cost debt, and many cars bought or repaired.

“Anything we can do to make the economic lives of our workers more stable benefits us” in the form of higher productivity, Elías said.

Write to Anne Tergesen at [email protected]

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