Missouri Manufacturer Provides Payday Loan Alternative
By Lindsay Frankel
Saving money can be tough for many workers, and that’s why a plumbing manufacturer is participating in a pilot program to help combat payday loan use among its employees. The program, offered through a non-profit employer-sponsored mobile savings and credit app, is a financial wellness benefit that gives employees the chance to save money directly from their paychecks, access low-interest credit, raise their credit scores and learn financial literacy skills.
The manufacturer’s CEO said he’d been looking for a way to provide employees with these types of financial support for some time. “The idea — the whole idea — that you’re trying to combat payday loans and create a financial cushion or a base for these folks, well that’s what we’ve been trying to do here… for our folks for the 25, 26 years we’ve been here,” he said.
Payday loans are short-term loans with annualized interest rates reaching almost 400 percent on average, according to the Consumer Financial Protection Bureau. These risky loans trap borrowers in debt, forcing them to take out new loans to pay off old ones. Unlike the pilot program , these payday loans don’t provide a financial safety net for borrowers; they exacerbate financial hardship.
Missouri has also gotten a bad reputation for illegal payday lending, Race car driver Scott Tucker and his brother Joel Tucker were both indicted in recent years for a payday loan scheme that illegally charged borrowers up to 1,000% interest on loans.
When employees enroll in the optional program, they commit to having 5% deductions taken from their weekly paychecks in order to save at least $1,000. The app is also linked to a credit union, allowing workers to take out low-interest loans in the case of an emergency.
One of the program’s first users was struggling to save enough money to cover the payments on her parents’ pickup truck. “We were struggling to make the money to pay the taxes on it and get it licensed and all that stuff and I just couldn’t save the money to do it,” she said. In order to avoid taking out a payday loan, she decided to take advantage of the benefit offered by her employer. She’s since been able to save the $2,000 she needed for the truck, in addition to refinancing her car loan at a much lower interest rate.