Could loan benefits be the next big thing in voluntary?
With many of Americans living paycheck to paycheck, credit and loan benefits are becoming a more appealing voluntary option for employees. Some brokers are viewing the benefit of taking out a loan through the employer, rather than going to a payday loan or auto title loan business, as a tertiary level offering that could retain young talent who are struggling to cover rent payments, student debt, car loans and other cost of living requirements.
However, some brokers fear they lack the manpower and capacity to retain the additional knowledge necessary to proficiently educate clients on these types of benefits.
The Consumer Financial Protection Bureau recently conducted a study that examined how certain high-cost financial products, such as payday loans and auto title loans, affect consumers. The CFPB determined that these products often prove unaffordable, which then leads to significant financial harm.
When it came to short-term loans that are typically due on the borrower’s next payday, the bureau found that the median fee on a storefront payday loan is $15 per $100 borrowed, and the median loan term is 14 days, resulting in an annual percentage rate of 391% on a loan with a median amount of $350.
Jeff Oldham, senior vice president of employer sales and the Benefitstore at Benefitfocus, says from an employer perspective, wages in America have remained relatively flat within the last five to 10 years, but healthcare spending continues to rise. Because of these stagnant wages, having a credit or loan option available through employee benefits could relieve financial burdens for employees while also not running the risk of high interest rates that could come from a payday loan company.
Also see: “Financial and legal stress impacts employee wellness.”
“The most common loans are usually $3,000 or less,” Oldham says. “Through a combination of the healthcare plan that [employees] are in and wages that remain fairly stagnant, employees will have a heck of a time paying back a loan to a payday loan office.”
Because of the growing need for these small loans, Oldham says third party vendors such as Kashable, SimpleFi and Employee Loan Solutions are becoming successful in the employee benefits space.
“These companies came about because employers were seeing the stress at the workplace on productivity because of their employees’ inability to payback these other types of loans,” Oldham says. “Companies, like Kashable, are able to go to an employer, set aside a pool of money for loans — typically $3,000 or less — and then loan that out with a respectable APR and give the employee six to 12 months to pay it off.”
Place in the market
Relatedly, brokers are identifying clients’ growing interest in financial benefits. However, some voluntary benefit brokers are questioning if they have the manpower, the knowledge capacity and the time necessary to educate their clients on how to effectively implement these products.
Joseph Alfonsi, partner at TriBen Insurance Solutions Inc., says employers who have a strong online ben admin platform with a high demand among the staff for credit and loan benefits, this voluntary offering could be useful at the tertiary level.
“We’re hearing more and more in the industry of these loan repayment options or loan repayment assistance. And, like anything else, if you hear it so much you’re more likely to look at it,” Alfonsi says. “I think the marketing of these types of products are so evident out there that, you have to look at it, but I doubt it is going to leap passed accident, hospital indemnity and critical illness.”
Alfonsi is not alone when saying loan benefits are not at the level of demand as supplemental medical benefits, nor or they a readily available voluntary benefit through an employer, but with so much publicity around these offerings the likelihood of credit and loan benefits becoming a standard option is high.
Eric Silverman, principal and owner of Silverman Benefits Group, agrees with Alfonsi saying the benefit may not be in such high demand today, but over time it will get there through greater adoption.
“The whole point behind these credit and loan companies is that [as an employee on payroll,] you’re owed the money you worked for already today, and through their program you can have access to your money today,” Silverman says. “For a lot of industries, I think this is a fantastic idea. In practicality, you have to have buy-in from the employer group. Then, it has to be educated properly, which I can’t stress enough, it comes down to the ability of the broker to impart that knowledge to the client.”