MARY LOUISE KELLY, HOST:
To another story now. Forty percent of Americans don’t have $ 400 to cover emergency expenses, like car repairs. Some people turn to payday loans or other expensive 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 emergency cash.
CHRIS ARNOLD, BYLINE: More companies are offering this kind of help these days, from giants like Walmart to small 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, Virginia. He and the team are getting ready for lunch.
BROWN: What he’s doing there is flouring the chicken. It’s called the famous chicken.
ARNOLD: The restaurant owner, Henry Loving, noticed over the years that many of his workers here were burning, not with frying oil, but with high-cost loans that they would get caught up in.
HENRY LOVING: You know, a lot of times the people I have working for me have little money and, you know, they go out and do payday loans or something. And by the time I found out, it was too late. They’re in all sorts of extra trouble trying to make it worth it.
ARNOLD: Keith Brown, the cook, remembers that a few years ago his brother was in the hospital and he needed to go to New York to see him. So he got a high-interest payday loan for $ 400.
BROWN: I got the loan, but it kept me in the hole. I had to keep getting loans for about three or four months to pay them back. And when I finished paying, I ended up paying double the money I had. In fact, I paid over $ 900 before it was over.
ARNOLD: Henry Loving, the owner, says that sometimes he himself would lend money to employees just to get them out of these loans.
LOVE: And they’re 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 found out about a company called PayActiv. It is a technology startup that helps companies obtain emergency cash for their workers for very small fees. And he signed up. Safwan Shah is the founder of PayActiv. He says the need is huge with so many Americans paying really high interest rates when they are out of cash.
SAFWAN SHAH: Our data analysis showed that working poor, working poor, or poor hourly workers paid about $ 150 a month. 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 a lot of money, and he says that actually workers usually have already made the money they need by working enough hours. They just hadn’t been paid yet.
SHAH: So we said that the problem is really a problem between paychecks.
ARNOLD: So your company PayActiv allows workers to have access to that money that they have already earned. Workers at many companies now, including Walmart, download an app on their phone and it’s linked to the employer’s payroll system.
SHAH: So if they worked, you know, nine days and made $ 100 every day, so let’s say they already made $ 900 but payroll is still five days away. They will then see a number that is half the amount they have earned and 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 push a few buttons and the money is transferred 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 expensive payday loans. The app also has some creative ways to push employees to create a savings account so they don’t have chronic cash problems.
LAURA SCHERLER: I really think it’s a game changer.
ARNOLD: Laura Scherler is director of economic mobility at United Way. She says some other companies work with employers to offer actual loans to workers, so it’s more than just an advance on the hours they’ve already worked. Consumer advocates say employers need to be careful here to make sure their workers get a good deal. But Scherler says there are good lower-cost loan options.
SCHERLER: It seems like there are a couple of things together right now that make this really exciting. I think employers are increasingly aware that financial stress affects their workers.
ARNOLD: More than 100 companies have subscribed to PayActiv. A Walmart executive says there has been one, quote, “extraordinary response” from employees and that more than 200,000 Walmart workers are now using the system. Chris Arnold, NPR News.
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