Could loan ben­e­fits be the next big thing in vol­un­tary?

Re­ceiv­ing a line of credit through an em­ployer may ease em­ploy­ees’ fi­nan­cial bur­den and boost pro­duc­tiv­ity

Employee Benefit News - - CONTENTS - BY CORT OLSEN

Re­ceiv­ing a line of credit through an em­ployer may ease em­ploy­ees’ fi­nan­cial bur­den and boost pro­duc­tiv­ity.

With many Amer­i­cans liv­ing pay­check to pay­check, credit and loan ben­e­fits are be­com­ing a more ap­peal­ing vol­un­tary op­tion for em­ploy­ees. Some or­ga­ni­za­tions are view­ing the ben­e­fit of tak­ing out a loan through the em­ployer, rather than go­ing to a pay­day loan or auto ti­tle loan busi­ness, as an of­fer­ing that could re­tain young ta­lent who are strug­gling to cover rent pay­ments, stu­dent debt, car loans and other cost of liv­ing re­quire­ments.

If done right, loan ben­e­fits can make a sig­nif­i­cant im­pact on cash­strapped em­ploy­ees.

The Con­sumer Fi­nan­cial Pro­tec­tion Bureau re­cently con­ducted a study that ex­am­ined how cer­tain high-cost fi­nan­cial prod­ucts, such as pay­day loans and auto ti­tle loans, af­fect con­sumers. The CFPB de­ter­mined that th­ese prod­ucts of­ten prove un­af­ford­able, which then leads to sig­nif­i­cant fi­nan­cial harm.

When it came to short-term loans that are typ­i­cally due on the bor­rower’s next pay­day, the bureau found that the me­dian fee on a store­front pay­day loan is $15 per $100 bor­rowed, and the me­dian loan term is 14 days, re­sult­ing in an an­nual per­cent­age rate of 391% on a loan with a me­dian amount of $350.

Jeff Old­ham, se­nior vice pres­i­dent of em­ployer sales at cloud-based ben­e­fit provider Ben­e­fit­fo­cus, says wages in Amer­ica have re­mained rel­a­tively flat within the last five to 10 years, but health­care spend­ing con­tin­ues to rise. Be­cause of th­ese stag­nant wages, hav­ing a credit or loan op­tion could re­lieve fi­nan­cial bur­dens for em­ploy­ees while also not run­ning the risk of high in­ter­est rates that could come from a pay­day loan com­pany.

“The most com­mon loans are usu­ally $3,000 or less,” Old­ham says. “Through a com­bi­na­tion of the health­care plan that em­ploy­ees are in and wages that re­main fairly stag­nant, em­ploy­ees will have a heck of a time pay­ing back a loan to a pay­day loan of­fice.”

Be­cause of the grow­ing need for th­ese small loans, Old­ham says third party ven­dors such as Kash­able, Sim­pleFi and Em­ployee Loan So­lu­tions are be­com­ing suc­cess­ful in the em­ployee ben­e­fits space.

Th­ese “com­pa­nies are able to go to an em­ployer, set aside a pool of money for loans — typ­i­cally $3,000 or less — and then loan that out with a re­spectable APR and give the em­ployee six to 12 months to pay it off.”

Joseph Al­fonsi, part­ner at TriBen In­sur­ance So­lu­tions, says em­ploy­ers who have a strong on­line ben ad­min plat­form, as well as a high de­mand among the staff for credit and loan ben­e­fits, could es­pe­cially find this vol­un­tary of­fer­ing use­ful.

“We’re hear­ing more and more in the in­dus­try [about] th­ese loan re­pay­ment op­tions or loan re­pay­ment as­sis­tance. And, like any­thing else, if you hear it so much you’re more likely to [con­sider] it,” Al­fonsi says. “The mar­ket­ing of th­ese types of prod­ucts is so ev­i­dent that you have to look at it.” But, at the same time, he says, “I doubt it is go­ing to leap passed ac­ci­dent, hospi­tal in­dem­nity and crit­i­cal ill­ness.”

Eric Sil­ver­man, prin­ci­pal of Sil­ver­man Ben­e­fits Group, an in­de­pen­dent in­sur­ance agency, says the ben­e­fit may not be in such high de­mand to­day, but over time it will get there through greater adop­tion.

“The whole point be­hind th­ese credit and loan com­pa­nies is that you’re owed the money you worked for al­ready to­day, and through their pro­gram you can have ac­cess to your money to­day,” Sil­ver­man says. “For a lot of in­dus­tries, I think this is a fan­tas­tic idea.”

“We’re hear­ing more and more in the in­dus­try [about] th­ese loan re­pay­ment op­tions.”

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