Note from SVCF: Last month, Heather Paulsen attended our breakfast event for professional advisors. She shared some information about an initiative she's working on, and we asked her to write this guest column so that more people could hear about it!
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By Heather Paulsen
More than half of all Americans live paycheck to paycheck, and 60% of Americans do not have enough savings to cover a $500 emergency. Payday lending often seems to be the only resource available to those who face an unexpected financial emergency, such as car repair, medical expenses or a broken refrigerator. Over 12 million Americans take out payday loans each year, paying an average 391% annual percentage rate. These so-called paycheck advances come with terms that often lead borrowers into a downward spiral of debt.
There are not many options for workers with an acute need for a small, short-term loan. Even a small financial setback can be a major stressor making an employee choose between addressing the emergency and covering basic needs. And because stresses outside the workplace affect employee productivity and performance, employers have a stake in finding a solution. The financial need is real—we need a viable alternative to payday lending to fulfill the need.
As a business consultant who works with socially responsible companies, I saw an opportunity to develop such an alternative in Mendocino County. Inspired by a model Income Advance Program created by Rhino Foods, a Certified B Corp in Vermont, I approached a local community-minded financial institution with the idea to create a similar program for our county’s network of Certified B Corps** (Benefit Corporations).
When launched this summer, the Helping Employees Access Loans (HEAL) program employee benefit will be available to approximately 600 employees of Certified B Corps in Mendocino County. With this innovative program, B Corp employers will be able to help their employees avoid predatory payday lending to take care of financial emergencies and at the same time build credit, savings and financial stability.
HEAL also benefits employers through improved employee productivity and retention. At Rhino Foods, among other great outcomes, employee turnover dropped from 39% to 15% within three years of starting its Income Advance Program.
How HEAL will work
The HEAL program will allow employees who have worked for one of Mendocino County’s B Corps for at least one year to access up to $750 for emergency expenditures—and the employer has broad discretion regarding the definition of what qualifies as an emergency, as an emergency for one employee may not be an emergency for another. The loan is approved by the bank upon referral from the B Corp employer. While loan approval is not dependent upon an employee’s credit score, employees will learn what their credit score is and how to improve it through financial education provided by the bank.
HEAL program loans are repaid to the bank via automatic payroll deductions set up by the B Corp employer, thus building the borrower’s credit score. When the loan is paid off, the payroll deduction is continued and rolled into a savings account, unless the employee asks for the deduction to stop. The only cost to the employer for this popular employee benefit is to set up payroll deduction.
Our partner financial institution in Mendocino County found this program attractive for several reasons:
- The Rhino Foods model offered solid proof of concept and a track record demonstrating that the default risk for these loans is extremely low.
- Certified B Corps are pre-vetted through the rigorous B Corp certification process which verifies their commitment to the well-being of their employees, community and environment in addition to running a profitable business.
- The HEAL program allows the bank to meet both mission- and business-based goals, including reaching new populations with financial education.
- HEAL helps to uplift some of our hardest-working community members who might otherwise be derailed by unexpected but urgent expenses.
What you can do
If you are an employee, talk with your company’s leadership and share this model employee benefit, especially if you know of any co-workers who have suffered from prolonged debt due to payday lending. Ask your employer to set up a meeting with their bank, credit union or other receptive financial institution to discuss the possibility.
As an employer or community leader, you can approach a local community-minded financial institution and propose implementation of a similar program with your own company, network or business association.
As a financial institution, you can approach a network of business leaders, such as the networks of “B Local” B Corps that congregate in your area. Consider the types of certifications (such as B Corp) that would pre-qualify a business to pioneer this program with you, and pitch the idea to offer a new employee benefit for them.
This is a win-win-win initiative. Through the HEAL program, employees can access a competitive loan, build a credit score, start saving money, receive financial education and create a more economically stable life. Employers get to offer a new employee benefit, increasing employee retention and attendance while taking on no financial risk. The financial institution wins as the HEAL program helps it to meet its goals of providing financial education to new adult populations.
** Certified B Corps (Benefit Corporations) are for-profit businesses certified by the non-profit B Lab to meet the highest standards of social and environmental performance, legal accountability and public transparency. B Corps are required to consider the impacts of their decisions on all stakeholders, not just shareholders.
Heather Paulsen Consulting specializes in B Corp and Zero Waste Certifications as a pathway for mission-driven companies to meet their social and environmental goals in measurable, lasting ways. Our goal is to transform business to build an inclusive, equitable, and regenerative economy.