Payday loan alternative gives employees access to loans as a perk: Plain Dealing

CLEVELAND, Ohio — Workplace Impact’s president, Shelly Sekki, was skeptical when a local nonprofit contacted her about offering payday loan alternatives to her employees as a perk.

When Neighborhood Housing Services of Greater Cleveland first presented the idea last summer, Sekki wasn’t sure her employees would even be interested in small-dollar loans.

But after some research about the loan program, part of which included making sure the company wouldn’t be on the hook for unpaid loans, the Mentor company signed on.

Almost as soon as the TrueConnect program launched in September, nine of her 37 employees — nearly a quarter of her workforce – took out loans.

To be able to help your people, it feels good. And it’s a good culture thing.” — Shelly Sekki, president of Workplace Impact
“We were shocked,” said Sekki. “We literally had people calling to thank us … It was a godsend for our people.”

NHS hopes rave reviews like that will encourage more employers, including Northeast Ohio municipalities, to agree to offer TrueConnect payday alternatives as an employee benefit.

David Rothstein, director of resource development for NHS, says the workplace-based payday alternative program is designed to be simple for companies and their employees.

Employers don’t handle –or even see — loan applications or approvals. Their chief involvement is setting up payroll deductions for employees who borrow.

“Employers, they’re on the hook for nothing,” Rothstein says. “They’re just the conduit.”

Companies that sign up for the program send encrypted payroll census data (no Social Security numbers are included) to Employee Loan Solutions, the company that designed the TrueConnect program. When someone applies for a loan, that information is used to speed loan approval so Minnesota-based Sunrise Banks, the lender, can deliver cash to borrowers in as little as 24 hours.

That kind of quick turn-around is part of what attracts borrowers to payday stores that charge 300 to 400 percent APR, sometimes more, on loans made against a customer’s next payday.

In contrast, Employee Loan Solutions’ TrueConnect loans charges 24 percent APR on loans. Borrowers have up to a year to repay through payroll deductions.

The lower cost and longer repayment time prevent borrowers from getting trapped in the spiral of repeat borrowing triggered by costly payday loans.

NHS of Greater Cleveland, which is marketing the program here, sees the payday alternative as an extension of the work it does helping people manage their money so they can buy and stay in their homes.

Before the group signed on as a partner, Rothstein said, it made sure there were built-in safeguards to protect borrowers.

Payroll deductions, for example, are capped at 8 percent of an employee’s gross pay, so payments don’t swamp an employee’s budget.

Loans come three sizes: $1,000, $1,500 and $2,000. The amount an employee can borrow depends on his or her salary. To be eligible, employees must have been on the payroll at least 90 days, and they must get their paychecks direct deposited.

TrueConnect payday alternative loans are designed as an employee benefit and are only offered through participating workplaces. The employer has no liability for unpaid loans or for repayments for workers who change employers before their loans are repaid.

Rothstein said NHS wanted to introduce the alternative loans to Ohioans before the Consumer Financial Protection Bureau announces national payday rules, which is expected to happen in early 2015.

“We don’t know what those rules will look like,” Rothstein said. “We are trying to show you can lend at less than the 300 percent APR and be successful. There’s also a need for small-dollar loans. We want to be part of that solution.”

When employers sign on to the program, their employees become eligible for financial education counseling through NHS – and that money-management help is available to them regardless of whether they take out loans.

The program was designed to let employees borrow without their employers knowing details, but Sekki said her employees at Workplace Impact have gone out of their way to tell her about how they used the newly available loans.

One borrowed to pay for a broken water heater. Another used a loan for car repairs, she said. And one employee used a loan to handle an ill-timed college tuition payment and then – because there’s no prepayment penalty — paid it off a few days later when a profit-sharing payment arrived.

“These are people we care about,” Sekki said. “To be able to help your people, it feels good. And it’s a good culture thing.”

Employers who want to find out more about the TrueConnect loan program can contact Rothstein at Neighborhood Housing Services of Greater Cleveland at 216-458-4663, Ext. 2340.

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