Walmart And Others Offer Workers Payday Loan Alternative | KUER 90.1

Walmart And Others Offer Workers Payday Loan Alternative

Aug 16, 2018
Originally published on August 21, 2018 9:51 am

Even in a strong economy, many Americans live paycheck to paycheck. Forty percent don't have $400 to cover an emergency expense, such as a car repair. And many working-class people turn to payday loans or other costly ways to borrow money. But more companies are stepping in to help their workers with a much cheaper way to get some emergency cash.

Startup companies that offer better options for workers are partnering with all kinds of businesses — from giants like Walmart to little fried chicken restaurants.

"This is where it all happens; this is kitchen here," says cook Keith Brown as he walks past the ovens and big bowls of flour at Lee's Famous Recipe Chicken in Richmond, Va. He and the crew are gearing up for the lunchtime rush.

The restaurant owner, Henry Loving, noticed over the years that many of his workers here were getting burned. Not with fry oil, but by high-cost loans they would get stuck in.

"You know, a lot of times the folks that I have working for me are tight on money and they'll go out and do payday loans or something like that," says Loving. "And by the time I get wind of it, it's too late and they're in all kinds of extra hard trouble trying to get that paid off."

Brown remembers how a few years ago, his brother was in the hospital and he needed to get to New York to see him. So he took out a high-interest-rate payday loan for $400.

"I got the loan. But it kept me in the hole and I had to continue to get loans and maybe for about three or four months to pay it back," says Brown. He says by the time he finally paid all the money and interest back, "I end up paying double the money I had got. I actually paid about $900 back before it was over."

Loving says sometimes he would lend employees money himself, just to help them get out from under these loans. "They are embarrassed to ask, but they'll come to me, and I mean otherwise they'll end up homeless or have to move out of state."

So when Loving heard about a company called PayActiv, a tech startup that helps companies get their workers emergency cash for very small fees, "I thought to myself, now that's a good idea," he says. And he signed up.

Safwan Shah, the founder and CEO of PayActiv, says the need out there is huge because so many Americans are paying very high fees and interest when they're short on cash.

"Our data analysis showed that it was close to $150 a month being paid by the working poor — per employee or per hourly worker in this country," says Shah. "That's a substantial sum of money because it's about $1,800 or $2,000 a year."

Think about that for a minute. According to the Federal Reserve, 40 percent of Americans don't have $400 in savings to fix their water heater or some other emergency. But Shah says they're spending around $2,000 a year on fees and interest to get emergency short-term cash. He thought this was a problem that needed fixing.

Shah also realized that often people don't need to borrow very much money. And he says that actually workers have usually already earned the cash they need because they have worked far enough into the pay period. They just haven't been paid yet.

"And so we said the problem is really a between-paychecks problem," says Shah.

His PayActiv company lets workers get access to that money they have already earned. So at many companies now — including Lee's Famous Recipe Chicken and the country's biggest private sector employer, Walmart — workers download an app to their phone. It's linked to PayActiv and to the payroll system of the employer.

"So let's say they've already earned $900" by earning $100 a day for nine days, says Shah. But payroll is still five days away and they need the money right away. Shaw says they open the app and "they will see a number which is half of the amount they have earned that is accessible to them."

So if they need $400 for a car repair or a trip to visit a sick brother, they tap a few buttons and the money gets zapped to their checking account or a prepaid card. And the fee is $5. (Some employers pay the fee or a portion of it.) And a lot of workers are deciding that's a much better option than getting stuck in a cycle of debt with costly payday loans.

The app also has some creative ways to nudge employees to build up savings accounts so they're not chronically strapped for cash. The system uses some techniques rooted in behavioral economics. Shah says it asks workers to put, say, two hours of pay a week into savings, because workers respond better to that than to a dollar amount.

Such tools are important, of course, because the problem companies like PayActiv are trying to address is not just one of workers not getting paid in time to pay some bills. It's a more complicated problem involving the difficulty so many Americans face of managing and staying on top of their finances amid all the other challenges of daily life.

"Quite candidly, most of America is living paycheck to paycheck and that's not a socioeconomic problem, that's an American problem," says Daniel Eckert, a Walmart senior vice president. "That spans multiple socioeconomic classes whether you're an hourly associate or a management associate."

He says Walmart's approach combines PayActiv's system with an app called Even that helps people better manage their money.

"I really think it's game-changing," says Laura Scherler, the director of financial stability and success at the United Way. She says some other companies work with employers to offer workers actual loans — more than just an advance on hours they've already worked. Those get paid back over longer periods of time with interest.

Consumer advocates say employers should be careful to make sure that their workers are getting a good deal. But Scherler says there are good lower-cost loan options. "There seems to be a couple of things coming together right now that makes this really exciting. I think employers are increasingly aware that financial stress impacts their workers."

And workers seem very aware of that too. More than 100 companies have now signed up with PayActiv. A Walmart executive says there has been an "extraordinary" response from employees. More than 200,000 Walmart workers are now using the system.

Copyright 2018 NPR. To see more, visit http://www.npr.org/.

MARY LOUISE KELLY, HOST:

To another story now. Forty percent of Americans don't have $400 to cover emergency expenses such as car repairs. Some people turn to payday loans or other costly ways to borrow money. But now, as NPR's Chris Arnold reports, companies are stepping in to help their workers with a much cheaper way to get some emergency cash.

CHRIS ARNOLD, BYLINE: More companies these days are offering this kind of help from giants like Walmart down to little fried chicken restaurants.

KEITH BROWN: This is where it all happens. This is the kitchen here.

ARNOLD: Keith Brown is a cook at Lee's Famous Recipe Chicken in Richmond, Va. He and the crew are gearing up for the lunchtime rush.

BROWN: What he's doing there is flouring the chicken up. It's called the famous chicken.

ARNOLD: The restaurant owner, Henry Loving, noticed over the years that many of his workers here were getting burned - not with fry oil but by high-cost loans that they'd get stuck in.

HENRY LOVING: You know, a lot of times the folks that I have working for me are tight on money and, you know, go out and do payday loans or something like that. And by the time I get wind of it, it's too late. They're in all kinds of extra hard trouble trying to get that paid off.

ARNOLD: Keith Brown, the cook, remembers a few years ago his brother was in the hospital, and he needed to get to New York to see him. So he took out a high-interest payday loan for $400.

BROWN: I got the loan, but it kept me in the hole. I had to continue to get loans maybe for about three or four months to pay it back. And when I finished paying it, I ended up paying double the money that I had got. I actually paid more than $900 back before it was over.

ARNOLD: Henry Loving, the owner, says sometimes he'd loan employees money himself just to get them out from under these loans.

LOVING: And they are embarrassed to ask, but they'll come to me and - I mean, otherwise they'll end up homeless or have to move out of state.

ARNOLD: But then he heard about a company called PayActiv. It's a tech startup that helps businesses to get their workers emergency cash for very small fees. And he signed up. Safwan Shah is the founder of PayActiv. He says the need out there is huge with so many Americans paying really high fees in interest when they're short of cash.

SAFWAN SHAH: Our data analysis showed that it was close to $150 a month being paid by the working poor - poor employee or poor hourly worker in this country. That's a substantial sum of money because it's about $1,800 to $2,000 a year.

ARNOLD: And Shah realized that often people don't need to borrow very much money, and he says actually workers have usually already earned the cash that they need by working enough hours. They just hadn't been paid yet.

SHAH: So we said the problem is really a between paychecks problem.

ARNOLD: So his PayActiv company lets workers get access to that money that they've already earned. Workers at many companies now, including Walmart, download an app to their phone and that's linked to the employer's payroll system.

SHAH: So if they've worked, you know, nine days and they got to $100 each day, so let's say they've already earned $900 but payroll is still five days away. So they will see a number which is half of the amount they have earned that is accessible to them.

ARNOLD: So if they need that $400 for a car repair or a trip to visit a sick brother, they tap a few buttons, and the money gets zapped to their checking account or a prepaid card. And the fee is $5, which sounds a lot better than getting stuck in a cycle of debt with costly payday loans. The app also has some creative ways to nudge employees to build up a savings account so that they're not chronically strapped for cash.

LAURA SCHERLER: I really think it's game-changing.

ARNOLD: Laura Scherler is a director for economic mobility at the United Way. She says some other companies work with employers to offer workers actual loans - so more than just an advance on hours that they'd already worked. Consumer advocates say employers should be careful here to make sure that their workers are getting a good deal. But Scherler says there are good lower costs loan options.

SCHERLER: There seems to be a couple of things coming together right now that make this really exciting. I think employers are increasingly aware that financial stress impacts their workers.

ARNOLD: More than 100 companies have now signed up with PayActiv. A Walmart executive says there has been a, quote, "extraordinary response" from employees and more than 200,000 Walmart workers are now using the system. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.