Reaching members of modest means with an alternative to payday loans often requires moving beyond traditional methods of making loans.
NorthCountry Federal Credit Union, South Burlington, Vt., developed the employer-sponsored Income Advance Program to offer quick, small emergency loans through the workplaces of participating companies.
NorthCountry Federal demonstrates its commitment to serving people of modest means with:
- Loan policies that include no minimum loan amounts for any loan products;
- No credit score cutoffs that eliminate the possibility of getting a loan; and
- Flexible underwriting criteria.
Yet the board of directors made it a priority to do more to counter payday lending. While payday lending is illegal in Vermont, it’s widely available online.
Borrowers pay a high price for these quick online loans, which carry annual percentage rates that typically exceed 400%.
NorthCountry Federal researched payday alternatives and sought input from the United Way of Chittenden County’s Working Bridges Project, comprised of more than 30 employers working together to address employment issues for low-to-moderate income employees.
Working Bridges helped NorthCountry Federal identify the need for emergency loans delivered in the workplace through partnerships with participating companies.
Employees of the 11 companies participating in the advance loan program can apply for a loan of up to $1,500 at their employer’s human resources department. Loans can be closed within an hour.
Other unique features include:
- No credit underwriting, so all employees qualify for a loan;
- No application or annual fees for borrowers Instead, participating employers pay an annual fee that’s typically less than $500;
- A fixed interest rate of 16.99%;
- No minimum loan amount;
- Loan payments are made through payroll deduction; and
- Repayment can take as long as six months.
NorthCountry Federal leverages its relationship with employers to offer information about Income Advance Loans in the workplace. In exchange, the program helps companies retain modest-income employees facing financial difficulties.
In the program’s first three years of operation ending in July 2010, NorthCountry Federal made 389 loans totaling more than $400,000. It wrote off $8,500 in losses—below projections of just under 10%.
Losses are covered by the employer’s annual participation fee. NorthCountry Federal meets annually with employers to review performance and adjust the participation fee.
The credit union also seeks to sustain its relationship with borrowers. Roughly 35% of borrowers continue the payroll deduction to build emergency savings after the loan is repaid. About half of employees with paid-off loans continue to have a relationship with the credit union.
Credit unions nationwide have expressed interest in NorthCountry Federal’s approach, and at least two have launched similar programs.
Closer to home, member stories prove the program is helping employees survive emergencies, create savings, and boost their credit scores.
For NorthCountry Federal, participating employers and employees seeking help to cope with a financial crisis, the Income Advance Loan is a payday alternative that works.