Alternative Finances

Are Employers The Low-Dollar Lenders Of The Future?

As the controversy around payday lending continues to swirl and questions about how and if low-dollar loans can be offered to low-income workers in a fair and low-cost manner are brought up more and more, a new potential source of such funds has started striding onto the field. Employers — in the form of a handful of firms — are starting to develop alternative financial products for employees.

What those services look like can vary. Software maker Kronos Inc. and International Business Machines Corp. (IBM) help workers pay off student loans, as well as consolidate and refinance their existing student loan debt. Other firms have begun exploring payday loan alternatives in the form of low-interest or no-interest lines of credit to help workers cover emergency costs or pay down other debt.

“I can’t have an effective employee if they are stressed and thinking about waiting tables on the side to make ends meet,” said Erik Dochtermann, chief executive of New York creative media agency MODCo Media, which has 33 full-time workers.

Dochtermann has been involved in extinguishing several employees’ high-interest debts and sets repayment at a 5 percent interest rate, reducing pre-tax compensation by the loan amount.

The move comes as the American worker is facing leveled-up debt. Fifty-one percent of employed adults continually carry credit card balances; 42 percent of millennials have student loans. About 5 percent of Americans use a short-term, high-interest credit product every year, while 20 percent of 401(k) participants had loans outstanding against their account as of the end of last year. According to PwC data, about 40 percent of fully employed adults found it hard to cover monthly expenses.

The number of employers stepping in remains small — 3 to 6 percent have loan repayment programs, depending on what type of loan it is. But that number might be growing, as employers are joining with firms such as Kashable LLC, Ziero Financial Inc. and Zebit Inc. to help fund and service loans. In some cases, those loan programs are married to seminars and financial planning.

However, such loans “need to be utilized with some caution,” said Kent Allison, national leader of consulting firm PwC’s employee financial wellness practice.

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