MADISON, Wis.–The Filene Research Institute and the FINRA Investor Education Foundation have begun making available to credit unions free resources for setting up small-dollar loan programs.
The objective is to help employers help employees avoid borrowing from payday lenders.
The release of the new resources follows an 18-month test of the Employer-Sponsored Small Dollar Loan (ESSDL) program by 13 financial institutions and 48 employers, according to Filene.
Filene reported that the test found:
- Implementing the program is easy. Offering the ESSDL program requires little staff training and minimal changes to financial institution operating systems.
- Competition is minimal and often predatory. The small-dollar lending market is dominated by high-cost alternative lenders and underserved by traditional lenders.
- The loan program is financially feasible. With reported loss rates ranging from 2 to 3% during the first two phases of product testing, the ESSDL outperformed projections.
- The program provides a way to deepen roots in your community. While employers may offer the ESSDL as a standalone employee benefit, partnerships with nonprofit community organizations that provide employees with additional services (including referrals to community resources and financial education workshops) may enhance program uptake and implementation.
“Research shows that more than half of American households have at least some difficulty keeping up with monthly expenses, and over a quarter of all households have turned to high cost alternative borrowing methods (such as an auto title loan or a payday loan) to help them make ends meet in the last five years,” said Filene on its blog. “Research also shows that financial stress has a negative impact on employee engagement, absenteeism, and productivity―ultimately affecting employer profitability. To provide a safe and affordable solution, financial institutions are partnering with employers to offer a small-dollar loan program that helps employees deal with immediate needs and build a stronger financial foundation. Through the ESSDL program, loan payments are repaid through payroll deduction and repayment is reported monthly to credit bureaus. Once the loan is repaid, a deduction in the amount of the loan installment continues on an opt-out basis and is deposited into the participant's savings account.”
To help credit unions get started, Filene said it is offering “everything you need” to start an ESSDL program, including a feasibility study, an implementation guide and a marketing kit.
For more information on the program: https://filene.org/incubator/incubator-project/employer-sponsored-small-dollar-loans