Akron Beacon Journal

What: Neighborhood Housing Services of Greater Cleveland is helping employers set up programs that give workers access to emergency loans of up to $2,000 at no cost or risk to the employer.

How: Employees of participating businesses apply for loans online. A 24 percent interest rate is applied. The loan is paid back through payroll deduction over a year. A Minnesota bank is the lender.

Why: High fees and interest rates from payday lenders lead many borrowers to take a second loan out to pay the first.
Information: Call NHS at 216-458-4663.
CUYAHOGA FALLS: The city of Cuyahoga Falls wants to offer itself as a role model for what employers can do to help struggling families avoid costly payday lenders in times of emergency.
City Council will vote Monday on giving its staff members access to a program in which they can request up to $2,000 in low-interest loans at no cost and no risk to the city.
The TrueConnect program the city wants to tap into was discovered by an ad hoc committee made up of council members and business leaders who spent the past year on one goal: To chase payday lenders out of town by offering a better alternative.
TrueConnect is a new offering from Neighborhood Housing Services of Greater Cleveland (NHS), a nonprofit that has teamed with a California software developer and a Minnesota bank.
In the six months since NHS brought the program to Northeast Ohio, about 10 employers have or are in the process of signing up, including one in Akron. Cuyahoga Falls would be the first city.
Cuyahoga Falls Councilman Vic Pallotta, who said he expects the legislation to pass easily next week, hopes that with the city taking the lead other local employers will follow suit. Cuyahoga Falls and Woodridge school districts and Western Reserve Hospital are among those discussing the program.
Pallotta said the city also will work with NHS to see if there is a way in the future to offer small loans to Cuyahoga Falls residents not involved with a participating employer.
This week, David Rothstein, resource development director for NHS, described to council how the program works:
An employee who works for a participating employer and needs emergency cash applies for the loan online. If the employee meets the requirements, which include passing any hiring probationary period with his employer and having a bank account open for at least three months, the employee would learn within a few minutes if the request has been accepted. Within 24 hours, the money up to $2,000 would be deposited in the employee’s bank account.
Employee Loan Solutions in California handles the operation; the FDIC-insured Sunrise Bank in Minnesota is the lender.
A 24 percent simple-interest rate is applied, and the loan total is amortized over 12 months, with biweekly or monthly payments made through payroll deduction. There is no other fee, and the employee can choose to pay the loan off early or request more time if needed.
A company’s human resources department would be notified to begin the payroll deductions, but otherwise, no information is exchanged with the employer. No Social Security numbers are provided, no reason for the payroll deduction is given and the company is not on the hook if an employee defaults.
Expanding program
Rothstein said his organization initially has been concentrating on getting the program to large employers with low turnover, including municipalities, colleges and hospitals.
The program works best with employers with low turnover rates because it becomes harder for people to pay back the loan if they don’t have payroll deduction in place, Rothstein said.
When a loan is paid back, the three national credit bureaus are informed of the successful transaction. Research shows that credit scores jump as much as 60 points when a yearlong loan is repaid.
This is not a silver bullet to putting payday lenders out of business, Rothstein said. But the average payday loans comes with a 319 percent annual percentage rate, and many people find they have to take out multiple payday loans to repay the previous one. We’re out to show the state of Ohio that it is possible to make loans without triple-digit interest rates, he said.
NHS also works with employers to prevent the causes behind emergency cash needs, such as teaching borrowers how to create a budget.
The loan amount is never higher than $2,000, with Rothstein saying that research shows that amount hits the target clientele of payday lenders: low- and moderate-income families who face $400 emergencies two to three times a year.
If someone needs $5,000, there is a much bigger problem in play, he said.
Paula Schleis can be reached at 330-996-3741 or pschleis@thebeaconjournal.com.