Employer-Sponsored Small-Dollar Loans
Help employers provide a safe, affordable loan to help their employees avoid the high cost of payday lenders, establish or repair credit, and begin to save.
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. 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.
An 18-month test of the ESSDL program by 13 financial institutions and 48 employers showed that:
- 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 stand-alone 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.
Credit unions are invited to implement a small-dollar loan program in your community.
The following materials include everything you need to start an ESSDL program in your community:
“I could breathe a little easier and also liked that it helps build credit.”
What people are saying
|“Extraordinary. It was a Godsend that helped me make 2 goals: to get the vehicle repaired & the payday loan paid off.”
“It helped with my emergency at a low cost and was very simple to go through the application process. It saved me a lot of time and hassle.”
"Participating in the ESSDL program has been a very positive experience for both our credit union and our members. With guidance from the research conducted through Filene’s incubator program, we have broadened our underwriting procedures in order to approve more and better loans to meet our members’ emergent needs. The ESSDL is a highly valued, low-cost employee benefit that has given us an opportunity to further strengthen an already strong partnership with our sponsoring health system. This has truly been a “win-win-win” endeavor."
-- Cheryl Dorman, CEO/Treasurer-Manager-- Mercy Health Partners Federal Credit Union
In 2007, the United Way in Chittenden County, Vermont, convened a group of employers to facilitate the development and implementation of workplace supports to improve employee productivity, retention, advancement, and financial stability. Among the needs identified by the new Working Bridges employer collaborative was a way to help the growing number of employees requesting pay advances or quitting their jobs to gain access to retirement funds. To address the challenge, Working Bridges employers partnered with NorthCountry Federal Credit Union to design a small-dollar loan to help their employees gain access to emergency cash, avoid the high cost of payday lenders, establish or repair credit, and begin to save. The ESSDL was piloted at Rhino Foods, a specialty food manufacturer in Burlington, Vermont, and gained national attention in 2013 when it was featured on the PBS news and public affairs show Need to Know.
In April 2014, the Filene Research Institute and the Ford Foundation partnered to test the ESSDL within Filene’s Accessible Financial Services Incubator. During the 18-month test the loan was replicated and implemented by 13 financial institutions, in eight states, in partnership with 48 employers. Further details about the incubator program and the ESSDL test are included in the Accessible Financial Services Incubator Research Report.
For more details and testimonials, see the Feasibility Study found in the Get Started section.
This program is offered in collaboration with the FINRA Investor Education Foundation. The FINRA Foundation provides underserved Americans with the knowledge, skills and tools to make sound financial decisions throughout life. To learn about other FINRA Foundation initiatives, visit finrafoundation.org.
Contact Corlinda Wooden, project manager, to learn more.