Payday Loans are a Hot Mess
By Matt Harris Leave a Comment
I wonder how many HR executives have actually seen the places where some of their employees go to cash their checks. I hadn’t. So I set out to find one last week.
I drove over to a largely blue-collar part of town late on a Friday afternoon. There was no shortage of payday loan and check cashing signs. I went into one storefront expecting to find a $5 or $10 fee to cash a paycheck.
Nope, 6 percent. Wow.
I found another location with a line out the door. I stopped and asked the young woman in front of me why this location was so popular. She said they charged the least in the area“ only $35 for her bi-weekly paycheck. So I joined her in line. And we waited. In the blazing sun. For 40 minutes. That gave me plenty of time to realize that not everyone lives around the corner from a Wal-Mart or a Bank of America. And to imagine what walking around this neighborhood with all my earnings, in cash, would be like.
The underbanked in the U.S. generated more than $30 billion in fees from either check cashing or payday loans last year. Payday lenders have more than 23,000 U.S. locations. That’s more than all the McDonald’s and Burger Kings combined. In addition to running rampant, these businesses charge an average of $15-$25 per $100 loan. Ouch.
Don’t think any of your employees fall into the underbanked category? Think again. The FDIC estimates that almost 10 million U.S. adults don’t use banks at all, and another 50 million use banks only sparingly. On the heels of Dodd-Frank and the Durbin Amendment, this is only getting worse, as banks are changing fee structures to remain profitable and pushing customers away. A banking executive I spoke to recently told me his neighborhood bank is now closing an average of 129 checking accounts per week.
I know that HR and Finance execs are often looking at the bottom line when considering going to a payroll card. It’s a way for companies to save significantly. But I would also encourage those leaders to think about that young lady standing in a hot line in a questionable part of town. We have a real opportunity to make the lives of our employees easier, safer and less stressful“ and in turn make them a more happy, productive and loyal staff.
Take my word for it“ and skip the line.
