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
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.”