Predatory lenders use unfair and deceptive practices that mislead people into taking out loans that aren’t in their best interest. A common example is payday loans.
These are loans marked by high-interest rates (typically in the range of 100-400%) and require some kind of collateral as a deposit. Many states have taken action and adopted a 36% cap on predatory lending, but not all…
Why Should You Care?
When your employees are struggling financially, predatory lending practices may be the only option they believe they can turn to. Your employees may then waste their time meeting with a payday lender over lunch, get sucked into a financial trap, fall into a vicious cycle of debt, and then become even less productive and focused at work.
A Few Signs That a Loan is Predatory
High Fees or Hidden Fees
Many predatory lenders will throw on a $15 charge every time $100 is borrowed. As if this weren’t bad enough, many aren’t likely to be borrowing just $100 once, but rather every week or possibly a few times each week.
Over time, this can add up to 300% or 400% annual percentage rate (APR). Essentially, one could borrow what was estimated to be about $500 and could actually be paying somewhere around $1,500…
No Credit Check Promise
Sometimes, no credit check promises sound too good to be true because they are. Payday lenders don’t take a credit check, which is a dream come true for many Americans. Unfortunately, they charge an arm and a leg in return along with sometimes taking large collateral as a deposit (such as a car or mortgage).
Despite this, some authentic no credit check loan options do exist! Click here to learn more about a SAFE, employer-sponsored no credit check voluntary benefit.
Access to Your Bank Account
Some predatory lenders ask for a post-dated check so that they have access to your bank account for automatic deposits AND automatic withdrawals. Now, they can withdraw the money you own them right then and there when it’s due.
You personally may not be looking at predatory lending, but your employees likely are or have at some time in the past. Here’s how this vicious cycle can affect your employees, not only at home but in the office too.
4 Ways Predatory Lending Negatively Affects Employee Engagement
1. Keep borrowers in debt (and stressed)
54% of Americans are stressed about money and many already have debt from before the Covid-19 pandemic. Without money, we can’t hope to live comfortably or feed our families. When money stress takes over, there isn’t a lot to think about besides providing for yourself and your family.
2. Leaves employees less engaged at work (focused more on debt and repaying loans)
As mentioned before, when employees feel like they have nowhere to turn, payday lenders become an appealing option despite their negatives. This may lead to employees leaving work midday to make payments or simply being unengaged at work when thinking about their money stress.
3. Doesn’t increase employees credit
Payday lenders end up harming credit even though they don’t require a traditional credit check. Every loan that gets taken out with a payday lender is a missed opportunity to build credit. Whether it be credit cards, car title loans, or your mortgage, there are great methods to build credit when payments are made on time. With payday lenders, it’s a waste of cash (potentially thousands) and a missed opportunity.
4. Doesn’t educate on positive financial habits so employees aren’t inclined to participate in other employee benefits programs
Payday lenders create a vicious cycle that doesn’t instigate any financial best practice education. Instead, it teaches borrowers how to live in fear around money. If your employees aren’t feeling financially stable, they are less inclined to participate in employee loan programs.
Despite the fact that employees need financial assistance, few employers offer adequate help.
For employees who have less than perfect credit scores, they are bound to utilize predatory lending practices. With TrueConnect, you can offer voluntary benefits to your employees at no cost, and help them to steer clear of predatory lenders.
To learn more about our patented financial wellness program with no credit check loans that cost employers absolutely nothing to implement and manage, contact TrueConnect today.
