If you are sorry about your meager 4% annual raise or if you did not receive anything at all, you can take heart: Now, there is a new employee benefit being offered to make it easier to borrow from your own future wages.
Just like the poorly-regarded pay-day loan industry, the new employee benefit offers a line of credit on your future wages. In an article in Employee Benefit News (September 2017, page 12), it looks like at least three vendors are ready to make the small loans (about $3,000 for less for 12 months) available to business HR departments, so their cash-strapped workers can use the money to cover such basic expenses as rent, student or car loans, or living expenses.
Since wages have remained stagnant since the Reagan administration, workers could need the loans since their employers are not offering higher wages, regardless of higher productivity. In a typical pay-day loan, the fees are often $15 for each $100 borrowed with a median loan term of two weeks.
Doing the math, this translates into an APR of 391% on a loan of $350. The high APR is exactly what the Consumer Financial Protection Bureau wants curtailed and that is one reason why that federal agency is always in the cross hairs of Republicans.
According to the Pew Charitable Trust, pay-day loans are a huge business. A Pew study found that 12 million American adults use pay-day loans annually. On average, a borrower takes out eight loans of $375 each per year and spends $520 on interest and $9 billion on loan fees.
The Employee Benefit News article does not say if the employer will take a percentage of the APR to cover the cost of the program, but my bet is they would. Who know? Making pay-day loans to your own employees could even become a HR profit center.
The article says there are at least three firms offering the loan benefit, but one principal at an independent insurance agency says “the benefits may not be in such high demand today, but over time it will get there through adoption.” Sadly, he may be correct.
More Bad News for Workers
Having the pay-day loan option readily available from your employer will change the worker-employer relationship even more. Employers will have an excuse not to offer raises and employees would have the honor of paying a 391% APR just to work for the company.
In the old day, employers in some industries, such as mining and manufacturing, had a company store where workers could buy goods, often at inflated prices, and have those debts deducted from their paychecks. This was paternalism in its highest form.
This is what the song meant when it said:
“You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don’t you call me ’cause I can’t go
I owe my soul to the company store”
But the re-appearance of the pay-day loan offered by an employer is another step backwards in a work environment which has idolized wage stagnation and worker insecurity.
Too bad it is now being recognized as another “employee benefit” when it really is just another form of modern financial exploitation.