Lending

CU Develops Workplace-Based Payday Loan Alternative

Income Advance Program offers quick, small emergency loans.

December 20, 2010
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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.

This innovative approach helped the $278 million asset credit union win the 2010 Credit Union Excellence in Lending Award, sponsored by CUNA Mutual Group and the CUNA Lending Council.

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.

Unique features

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.

Member returns

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.

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Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory (www.appreciationatwork.com/assess) will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

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