Doña Ana County, NM – Case Study

Numerous studies have shown that a majority of American workers are living paycheck to paycheck and would struggle to pay for an unexpected expense as small as $500. Unfortunately, this leaves many consumers, particularly those with no credit scores or poor credit, vulnerable to predatory lenders who take advantage by charging excessive rates. But in Doña Ana County, N.M., public employees have found a different solution.

Located in southern New Mexico, Doña Ana County has a population of 215,000 people. Within the community, an estimated 27.9% of the population live at or below the poverty level. The Doña Ana County economy specializes in Agriculture, Forestry, Hunting, and Fishing, Education Services, and Public Administration. The largest industries in the county include:

  • Education
  • Healthcare and social services
  • Retail

The highest paying industries are:

  • Utilities
  • Technology and scientific services
  • Warehousing and transportation

Employee and Educational Background in Doña Ana County

Doña Ana County is not lacking when it comes to educational opportunities. It is a university town which is home to New Mexico State University. Doña Ana County also has a community college. Within less than an hour’s drive away is the University of El Paso and the nearby University of New Mexico.

Employees in Doña Ana County who work in the public sector have a wide range of education levels from high school diploma to masters and doctorate degrees. There are job opportunities to match this range, from maintenance and wastewater work to administrators and directors. Despite these opportunities, there is still a heavy financial burden for many employees, when it comes to paying for their children’s education.

Lani Davis is a Benefits Leader from Doña Ana County. She deals with public employee’s financial issues and the burden of paying off education on a daily basis. Recently, in an exit interview, one employee explained, “I’m moving to New Mexico State University as an employee because my daughter wants to go to college, and that’s the only way I can afford for her to go to NMSU because if you work for NMSU, they get a discount.”

Doña Ana County Residents’ Financial Status

Many of Doña Ana County residents are suffering from financial crisis. This problem is reflected in the community, which has more payday lender stores than it has fast food restaurants. The problem is exacerbated by the fact that due to lending rates as high as 400 percent, many employees are never able to pay off their loans completely.

In the past, the county provided free empowerment workshops for employees. The aim of the workshops was to provide quality financial and health information so that workers could make more informed decisions. Each monthly workshop had a visiting speaker with a background in finance or healthcare. Despite the quality of the information provided, unfortunately, the workshops did not change the fact that employees still needed payday loans. The only place they could get cash quickly was from predatory loan shops.

The Problem with Predatory Lenders

Predatory lending is any money lending practice which takes unfair advantage of the borrower by offering deceptive, unreasonable, or coercive terms on a loan. It has become a big problem in the U.S., particularly for those who do not have prime or near prime credit scores and struggle to qualify for “traditional” loans from banks or credit unions.  Here are some of the ways in which predatory lenders take advantage of borrowers with payday loans and cash advances:

  • Charge triple digit interest rates
  • Charge hidden fees
  • Short payment terms (under 90 days) that encourage “flipping” into new loans
  • Not consider the borrower’s ability to repay

What makes payday lending a predatory practice is mainly the combination of annual percentage rates and short-term due dates. This means that employees have great difficulty paying back their loans. The typical borrower cannot pay the full balance off in two or three weeks, so they “flip” their loan an average of 8-9 times  – with new fees each time trapping them in an unending cycle of debt.

Facts About Payday Loans in New Mexico

Payday loans are being used throughout the state, and instead of helping borrowers, they are increasing their debt problems. Here’s a look at just how that is happening:

  • In 2015, 60,000 New Mexicans took out payday loans with an interest rate of more than 175% APR.
  • The average borrower took out a loan of $811 for one month at 253% interest. The average customer renewed the loan twice, contracting a total payback of $1,324 for a three-month loan.
  • In total, New Mexico one-month lenders reported $103 million in loans with contracted finance charges of $21 million.

These statistics show the shocking truth of how predatory lenders in New Mexico are causing employees, who are already struggling with their finances, to spiral into a debt crisis. And this problem is not isolated to New Mexico. It is happening to low-income employees throughout the United States.

The Widespread Problem with Payday Loans

In the United States as a whole, one in ten people has used payday loans, some of them with interest of up to more than 400 percent. That costs way more than the average credit card. Payday loans are available in most states. To get one, all employees have to do is go to a payday loan store with their ID, proof of income and bank account information. The balance of the loan and the interest charges are usually due within two weeks; on the next payday.

Disturbingly, payday loans are big business in the U.S., racking up a revenue of more than $9 billion. But while they provide quick cash, the national average percentage rate for payday loans is almost 400 percent. In contrast, the average interest rate on a credit card is currently 17.9 percent APR. How can people afford to pay back payday loans? The terrible truth is that most of them can’t.

In an attempt to reduce the potential financial crisis for payday borrowers, 15 states and the District of Columbia have imposed laws which limit the APR to a maximum of 36 percent. However, 35 other states are not so cautious. Ohio currently has the highest payday loan interest rates in the country with an average of 667 percent. Idaho, Nevada, Utah, and Texas have rates nearly as high. (Ohio just passed a new law reducing their rates to 28% APR, plus fees)

For people who cannot keep up with their payday loan payments, the penalties are severe. Many payday lenders are very aggressive about collecting their money and will garnish it directly from borrowers’ bank accounts since this is a condition of the loan. These withdrawals not only take a chunk out of borrower’s available cash, but they can also lead to expensive overdraft fees and can harm their credit scores.  Even those who pay back their payday loans ontime do not see any benefit for doing so, because the repayments are not reported to the credit agencies. So the impact of payday lending on a borrower can only be negative on their credit score.

Finding a Safe and Healthy Solution to Payday Loans

Employers and HR representatives who care about their employees do not want them caught up in this cycle because it causes undue stress and negatively affects their health and the quality of their work. But many employers and their HR reps are floundering to come up with a solution that will end the employee debt cycle and give workers healthier options.  A growing number of employers are adding financial coaching or education programs, but those options only go so far.

This is why more and more employers are turning to TrueConnect for help. TrueConnect is a web-based, employee benefit program offered at no cost or financial risk to employers.  TrueConnect provides employees with access to a small loan from an FDIC insured federally chartered bank, without regard to their personal credit score – so even those with no credit score or poor credit can still qualify.  Loans are affordable and repaid through convenient payroll deduction over a fixed 1-year term to make it easy to repay. TrueConnect is fully automated, which makes it easy to administer for the employer.

The TrueConnect Solution in Practice

Lani Davis is the Senior HR Administrator of Benefits in Doña Ana County. In 2016, she was asked to find a solution to payday loans, following a survey which revealed the debt crisis these loans were causing. After some research, Lani found out about TrueConnect and began using their services in February 2017. With TrueConnect, Lani is able to help Doña Ana County employees in numerous ways and to set more goals for their future.

How Doña Ana County Employees Are Reacting to TrueConnect

When the TrueConnect solution was initially introduced to Doña Ana County employees, some of them signed up right away while others were a little more cautious. The employees who had reservations at first were curious to know why their employer was offering them a loan program, fearing it might be a scam. Separately, they were not sure the program would help since the interest rate was 24.99% APR, just like a credit card.

Lani explained that employers are using this rate to help people who are unable to get a credit card because they have a bad credit score or no credit score at all. Once the employees understood the benefits of TrueConnect, a common response from the employees was, “Oh, my god. This is the answer to my problems.” They soon started signing up because they realized that having a payday loan that they can never see the end of, is not the only way for them to get money to help them through financial difficulties. For example, with the TrueConnect solution, they can borrow $2,000 for their emergency needs, and pay it off within twelve months by payroll deduction.

Once the TrueConnect program was implemented, 30 employees immediately applied for it. As of now, 65 percent of the organization has used TrueConnect. Employees must have been working in Doña Ana County for at least one year to be eligible to apply for a TrueConnect loan. Lani explains that this is not a problem for their workers because they tend to stay for at least one year. The reason for this is mainly because of the state of New Mexico’s retirement plan. People who are hired in the county tend to stay in their jobs because of the retirement plan. It’s not just a 401(k) but a pension plan in which the workers pay 4.79 percent and their employers match it. Additionally, the county pays 20 percent. It is an attractive plan for public workers.

TrueConnect Comes to Doña Ana County

Currently, TrueConnect has been up and running in Doña Ana County for eighteen months. As of October 1, 2018, a total of 343 TrueConnect loans have been taken for a total of $560,000. As of their last payroll, they have 196 loans out with TrueConnect. TrueConnect is a flexible benefit and can work with any other local lenders to help employees to improve their credit scores so that they will be able to qualify for a more traditional loan down the road. In Doña Ana County’s case they worked with Wells Fargo to offer employees money management advice, but TrueConnect also works with other local community banks and credit unions.

TrueConnect is reporting each employee’s loan in their payment plans, which helps increase their credit score. The ultimate aim is that Wells Fargo bank will eventually approve and give them a credit card.

TrueConnect is proof that employees – even those with heavy financial burdens – do not have to become victims of predatory lenders. Lani knows this only too well because she sees it first-hand.

“I had one employee who loved the TrueConnect program because every payday during her lunch hours, she would drive across town to pay a payday lender, and then get back to work just in time for her lunch to be over. She never saw the end of it. Whereas now with TrueConnect, she saw that after a year, her loan was paid off. No more lunch breaks spent driving across town paying absurd rates. That was a big thing for her.”

An employee who wants to apply for a TruConnect loan can do so by means of the simple online application process that they can do from home or even their phone. The process takes about 3-5 minutes and they will  know straight away that their loan has been approved. Funds are sent by ACH to an account the employee chooses, usually the next business day. Repayment is made simple. Small payments are made automatically with payroll deductions. All transactions are completely confidential.

How Employers Can Use TrueConnect

TrueConnect doesn’t just benefit employees, it’s also a great program for employers to connect with their staff and help them stay physically, emotionally, and financially healthy. For example, if a supervisor or HR representative is approached by an employee who is having financial difficulties, they can easily invite them to check out the TrueConnect loan program.

Many employers are like Lani and don’t want to see their members or staff forced into going to a payday lender. “It was our bottom line to give them an alternative, so that if they needed cash, they can go to TrueConnect and get that money in 24 business hours as opposed to going to a payday lender and giving up their car so that they can pay for a medical bill or something to that effect and pay 400%. It is there to actually help those people to avoid payday lenders.” The main point is that a TrueConnect loan gives employees access to a safe loan when they need it, whatever they choose to use it for. Now they have a much better option than turning to predatory lenders.

When it comes to giving advice to other companies, Lani points out that with TrueConnect loans, there is absolutely no risk to the employer. Yet in return, employers get a lot of goodwill and increased loyalty from employees who take out TrueConnect loans. Employees who no longer have the expense of payday loans have lower stress levels and they are much happier.

And employee happiness matters because companies that see happier employees also see increased productivity and performance. This is because positive emotions lead to more time focused on creative tasks. Not only is the employee happy, there are no disadvantages for the employer. They don’t have to spend any money, and there’s not even a lot of work for them to do. So, it’s a win-win situation for everyone.

Save Your Employees from Financial Crisis

If you’re an HR leader, account supervisor, or superintendent consider using TrueConnect’s innovative services. TrueConnect provides safe and effective employee loans solutions, which enable workers to borrow the money they need and to pay off the loan in a timely manner. Their mission is to offer employees a helping hand, so they do not have to resort to seeking help from predatory lenders, which will make for happy and healthy employees, a consistent quality of   work, and security for your company.

Contact TrueConnect today to find out more about how you can implement safe and efficient loans in your workplace so that your employees can steer clear of predatory lenders and avoid a debt crisis. There is no cost to your company, all employees pay the same interest rate, and no credit check is required. What’s more, if you do not already have your own financial education/coaching program, all TrueConnect borrowers are eligible for up to six free financial counseling sessions, so they can talk to a professional if they need additional help with their personal finances.

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