Employer-Sponsored Small-Dollar Loan Details
Research shows that more than half of American households have at least some difficulty keeping up with monthly expenses, and over a quarter of all households have turned to high cost alternative borrowing methods (such as an auto title loan or a payday loan) to help them make ends meet in the last five years. At the same time, financial stress has a negative impact on employee engagement, absenteeism, and productivity.
Through the Employer-Sponsored Small-Dollar Loan (ESSDL) program, financial institutions are successfully collaborating with employers to improve business outcomes by providing safe and affordable small-dollar loans to help hardworking employees meet their immediate needs and build a stronger financial foundation.
Learn more about the nuts and bolts of how the program operates by hearing directly from two credit unions in different stages of implementing this program. In this video, they share their successes and challenges and how they overcame them.
What does this mean for my financial institution?
During an 18-month test period, the ESSDL program was implemented in eight states by 13 financial institutions that worked with 48 employers and showed that:
- Implementing the program is easy. Offering the ESSDL program requires little staff training and minimal changes to financial institution operating systems.
- Competition is minimal and often predatory. The small-dollar lending market is dominated by high-cost alternative lenders and underserved by traditional lenders.
- The loan program is financially feasible. With reported loss rates ranging from 2 to 3% during the first two phases of product testing, the ESSDL outperformed projections.
- The program provides a way to deepen roots in your community. While employers may offer the ESSDL as a stand-alone employee benefit, partnerships with nonprofit community organizations that provide employees with additional services (including referrals to community resources and financial education workshops) may enhance program uptake and implementation.
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Accessible Financial Services Incubator
During the past two years Filene tested five innovative products designed for low-and moderate-income consumers. In this report we share our results on the efficacy of these products and their potential for long-term sustainability.
"Participating in the ESSDL program has been a very positive experience for both our credit union and our members. With guidance from the research conducted through Filene’s incubator program, we have broadened our underwriting procedures in order to approve more and better loans to meet our members’ emergent needs. The ESSDL is a highly valued, low-cost employee benefit that has given us an opportunity to further strengthen an already strong partnership with our sponsoring health system. This has truly been a “win-win-win” endeavor."
Mercy Health Partners Federal Credit Union