Employer Sponsored Small Dollar Loans Webinar Slides
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Financial Stress and Workplace Performance Cynthia Campbell Director of Innovation Labs Employer Sponsored Small Dollar Loans Accessible Financial Services Incubator
Transcript of Employer Sponsored Small Dollar Loans Webinar Slides
Financial Stress and Workplace Performance
Cynthia Campbell Director of Innovation Labs
Employer Sponsored Small Dollar Loans!!
Accessible Financial Services Incubator
Accessible Financial Services IncubatorWhat is the Incubator?!$700,000 / 30 month grant from the Ford Foundation to benefit low-and-moderate-income (LMI) and un/under-banked consumers in a profitable and sustainable way. The Incubator will test, package, and scale innovative, viable products that provide alternatives to predatory products.!• Phase 1 - The Lab!! Identify five promising products to test in credit unions.!• Phase 2 - The Factory!! Manufacture innovations and package products for mass ! ! !! adoption.!• Phase 3 - The Marketplace!! Distribute products through in-person and open-source online ! !! marketing.
Today’s Market OpportunityMainstream financial institutions consistently fail to improve access for vulnerable persons to affordable credit and other essential financial products. Consequently, alternative financial services providers have ample opportunity to exploit underbanked individuals.!
Statistics:!• 8.2% of Americans are un-banked (rely on cash and alternate financial
services (AFS)). !• This represents 1 in 12 households in the nation, or nearly 10 million
households with 17 million un-banked adults. 1!• 20.1% of US households are under-banked (have an account but still rely
on AFS for many of their needs). !• This represents 1 in 5 households or 24 million households with 51
million under-banked adults. 1
What are Alternative Financial Services (AFS)?Financial products offered by providers that operate outside of federally insured financial institutions (credit unions and banks). • Check Cashing Outlets
• Money Transmitters
• Car Title Lenders
• Payday Loan Stores
• Pawnshops
• Rent-to-Own Stores !
There are approximately 20,000 payday loan storefronts in America. !
The average interest is 400%.
Who Uses Alternative Financial Services (AFS)?25% of households have used at least one AFS product in the last year, and almost 10% of households have used two or more types of AFS products.1!In all, 12% of households used AFS products in the last 30 days, including four in ten un-banked and under-banked households. 1
!The volume of AFS transactions totals more than $320 Billion annually. 2!!1 http://www.fdic.gov/householdsurvey/ 2 http://www.fdic.gov/bank/analytical/quarterly/2009_vol3_1/AltFinServicesprimer.html
Every year over 12 million Americans become trapped in a cycle of debt as a result of predatory payday loans with interest rates that can exceed 400%.!
The financial problems of employees cause:!
• Untold hardship monetarily, emotionally, and physically.!
• Reduction in productivity.!
• Increased absenteeism.!
• Increased staff turn-over.!
• Employee distraction.!
• Reduced employer profitability.
How does this Impact Employers?
A Solution:Hypothesis:IF employees have access to affordable small dollar emergency loans at the job site, THEN they will be able to deal with emergencies quickly, reducing impact to employer’s bottom-line and saving money because they are able to avoid predatory financial services.!
To combat a serious drain on workplace productivity,employers can partner with credit unions to provide emergency small dollar loans to their employees at the workplace.!
This leads us to…!
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Employer Sponsored Small Dollar Loans ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Employer Sponsored Small Dollar Loans• Employer and Credit Union establish a partnership.!
• Employee can receive a small-dollar loan up to $1,500.!
• Loan term is generally six months but could be 12.!
• Payroll deduction is required on payday.!
• Employee can take no more than one loan out at a time.!
• Adherence to NCUA guidelines on maximum interest rates and fees: 15.75%-16.99% has been the sweet spot for this product to be sustainable for credit unions while still aligned with mission.!
• Employers pay a sponsorship fee ($300-$1500) that is used to offset losses. !
• Underwritten on the basis of the borrower’s ability to pay, not credit score. Credit pulled for benchmarking and informational purposes only. !
• Available to new members who have worked on this job 6-12 months (determined by employer and Credit Union).
Why this Product Works• Borrowers have quick access to
needed funds.!
• Loans are not tied to next paycheck (6-month repayment).!
• Keeps members out of high-cost alternative products.!
• Provides a solution for borrowers not eligible for other credit union products.!
• Puts borrowers on a continuum to access credit union products.!
• Improves the economic well-being of the community.
Employer Sponsored Small Dollar Loan Payday Lender
$500 for 90 Days
16.99% APR/No application fee
Fees and interest equal to $15 per $100 borrowed every 14 days (400% APR)
Total cost: $22! Total cost: $450
Credit Building - Reports to CRAs
Not usually a credit builder
Prior Pilot ResultsNorth Country FCU:!• Program established in 2007.!
• Total number of participating employers = 19.!
• Total number of loans granted = 1,047.!
• Total Dollar amount of loans granted = $900,770.!
• Average loan size: $860.!
• Total amount charged off since inception $34,215.!
• Delinquency is low at 3.8% (they planned for 10%).!
• Interest rates at 15-17%.!
• Average employer fee = $250.
Prior Pilot ResultsWorking Bridges/United Way:!• Total number of participating employers = 22.!
• Total number of financial institutions partnering with = 5.!
• Total number of loans granted = 500+.!
• Total number of loans charged off since inception = 19.!
• Delinquency is low at 3.9%.!
• Employers report 8-50% of employees use the program.!
• One employer workplace reported a 23% deduction in turnover in 2009. !
• Using conservative turnover costs, this is a savings of $165,000 over three years.!
• This employer also reported a reduction in unscheduled time off – from 4.3% to 2%, saving this employer money on two-fronts.!
• Tammy's Story (under 2 min)!
• PBS Interview and Story (12 min)
Video Testimonials
What do employers say about the program?!• “Fantastic!” !
• “Best benefit we offer!” !
• “Easy!” !
• “One of the most utilized benefits we have!” !
What did employees have to say about this product?!• “Without this loan I would have no heat.” !
• “Without this loan I could not repair my car.” !
• “Without this loan I would be late to work a lot.”!
• “Without this loan I would lose my place to live.”
The Human Impact
EMPLOYEE!• Convenient access
with minimal hassle.!• Receive small dollar,
fairly priced loans to m e e t i m m e d i a t e financial needs. !
• The loan reports to the CRAs and helps build a positive credit rating.!
• Once the loan is paid off, the auto payment can fund a savings a c c o u n t , b u i l d i n g financial stability.!!
EMPLOYER !• Reduced 401K loans
& payroll advances.!• S i g n i f i c a n t c o s t
s a v i n g s t h r o u g h reduced turnover.!
• P e a c e o f m i n d knowing employees a r e n o t u s i n g predatory services at minimal cost to them.!
• Retaining workers that would otherwise be absent or have to quit, building reliability.!!
CREDIT UNION!• Minimal investment
on the part of the credit union.!
• Generates revenue for the credit union.!
• Fosters relationships with employers in the community.!
• Increases membership & helps community reduce reliance on predatory lenders.
It’s a Triple Win
• You will gain hands-on experience testing new, exciting products. !
• Filene will do the heavy lifting of finding evidence and channels for product innovations and will guide you in testing these innovations. !
• This is a grant-funded activity, and Filene’s only interest is testing products in the real world and sharing the results with their developers and credit unions.!
• Macro shifts point to this “segment” as a growing percentage of the U.S. populace.!
• Mission alignment with people helping people.!
• Together we are working to solve a big social problem in the United States and collaboration on this effort is essential.
Why Participate?
What’s Required?!→ Demonstrate ability to systematically test the Employer Sponsored Small
Dollar Loan product over an 18 month timeframe.!→ Offer the Employer Sponsored Small Dollar Loan product with at least
200 of your members.!→ Adhere to research protocol and guidelines.!→ Provide insightful commentary on pilot from staff, member, and board
perspective.!Interested?!→ Let us know that you are committed to being a tester.!→ We will work with you on implementation, staff training, marketing
materials, data collection, and reporting.
Credit Union Testers
