ABQ boosts alternative to payday loans

Program offers city, county workers lower interest rate

Hundreds of city of Albuquerque employees have borrowed more than $600,000 through a new program intended as an alternative to payday loans — one the city helps promote and administer.

California-based Employee Loan Solutions provided 316 of its “TrueConnect” short-term loans to Albuquerque’s municipal workers under the auspices of a 2018 agreement with the city. The loans come with a 24.99% interest rate and the city automatically deducts loan payments — made over 12 months — from workers’ paychecks.

TrueConnect provides “an option for employees who are having or going through a hardship or are in an emergency situation that leaves them in dire straits,” said Patricia Martinez, deputy director of Albuquerque’s Human Resources Department.

New Mexico has about 600 licensed payday, title and other small loan companies, according to the state Regulation and Licensing Department website. Those companies can charge interest rates up to 175%.

Officials consider access to the loans part of the city’s benefits package, with a TrueConnect advertisement in the city’s employee benefits handbook that touts the ease of the application process and quick availability of funds.

“Sometimes we all need a little help,” the TrueConnect page says. “We have partnered with your employer to offer you a voluntary employee benefit. TrueConnect is a small dollar loan designed to help you when you need it.”

Albuquerque is not alone. Bernalillo County also participates, with hundreds of its employees having borrowed more than $800,000.

Nearly 16,000 employees across New Mexico — predominantly in the public sector — have access to TrueConnect loans, according to Prosperity Works, a nonprofit anti-poverty organization in Albuquerque that has helped the company expand in New Mexico. Participating employers also include the city of Las Cruces, Central New Mexico Community College and Comcast New Mexico.

The loans are “one of the ways we can begin to address the fact that individuals and families need access to small-dollar lending and that they shouldn’t be punished for that by paying triple-digit APRs and being stuck in a cycle of debt that’s almost impossible to get out of,” said Michael Barrio, advocacy director for Prosperity Works, which helps participating employers implement the TrueConnect program and in return shares in a portion of TrueConnect’s revenue.

Employee Loan Solutions has more than 1,000 participating employers across the U.S., according to Doug Farry, the company’s vice president of partners.

TrueConnect — the company’s lone product — is meant to be accessible to people with poor credit or no credit score, he said, adding that it will likely not be appealing to 80%-85% of workers at any participating agency.

Borrowers are offered free credit counseling and coaching, and their repayments are reported to the credit agencies, which can help build a positive credit history, Farry said.

“It’s not designed for people who have other options available,” Farry said. “We’re very transparent about the fact that if you’ve got good credit and you’ve taken loans and paid them back on time, this is probably not going to be an attractive offer for you, because you can get something better someplace else.”

The company does not run credit checks on borrowers, instead using information provided by employers to validate their employment and help determine the size of a loan.

The city of Albuquerque, for example, regularly sends employee census files with workers’ names, salaries and zip codes, which Farry said is used only to automate the application and approval process.

With more than 7,000 regular and seasonal staff members, the city of Albuquerque is the largest of New Mexico’s participating employers. The city pays nothing under the terms of its 2018 agreement but does collect an administrative fee from TrueConnect that has so far totaled a little over $1,300.

City Councilor Diane Gibson in 2017 introduced the resolution that led to the city’s contract with Employee Loan Solutions. She said this week that the program not only gives workers an alternative to higher-interest loans, it may also allow younger workers to build credit.

“It is not easy getting started to establish credit and buy things for the first time; you need a kitchen table, you need some furniture (or) whatever, this helps a lot of people to do that,” she said, adding that it also helps those in a pinch. “A lot of people don’t really have much of an emergency fund.”

Loans range from $1,000-$3,000, and the payroll deductions cannot exceed 8% of an employee’s gross pay, according to the city’s HR department.

City workers collectively took out $608,500 in TrueConnect loans between July 1, 2018, to June 30, 2019, according to reports filed with the city. The average loan amount was $1,929, and the average annual salary of the borrowers was $41,084.

Bernalillo County introduced the TrueConnect loans in May 2018, and so far 398 of its employees have taken out a total of $816,000 in loans. The average salary of those borrowers is $45,057, according to data provided by the county.

Bernalillo County Commissioner Maggie Hart Stebbins celebrated the program in a Facebook post shortly after the county adopted it last May, writing that it enabled county employees “to avoid high interest, predatory, payday loans that unfairly and egregiously drain resources from our community’s most vulnerable members.”

All told, TrueConnect has made 2,119 loans worth $3.9 million in New Mexico since 2017, Prosperity Works said.

Barrio said data show that New Mexico’s TrueConnect borrowers come from a range of income levels and use the money for many reasons, including home and auto repairs.

The assumption is that some would otherwise have turned to more expensive options.

Prosperity Works says a 2018 TrueConnect survey asked about 1,300 New Mexico borrowers where they had previously gone for small-dollar loans. Nearly half — 48.2% — self-reported they had relied on payday loans. More than a quarter — 27.2% — said they’d used car title loans in the past.

Barrio said Prosperity Works wanted to bring alternatives like TrueConnect to the marketplace.

The average interest rate for new credit cards is 14.56% for those with excellent credit, according to a report released last week by the personal finance website WalletHub. It is 20.93% for those with good credit and 23.25% with fair credit.

“We’re not saying (TrueConnect’s) 24.99% is even a desirable APR for anyone really, but for these kind of specific loans for this specific market and in a market that’s saturated with triple-digit APR rates, it’s something we can work with,” Barrio said.