by Ken Vincent, Featured Contributor
I’ve never been high on payroll advances because it is often a way of helping an employee live beyond his means. Okay, I’ve made a few exceptions where an employee had a major expense that they couldn’t handle, or where a new employee needed that to get to his first paycheck or two.
But, now there is a new goblin in the weeds and I really have to wonder why any company would participate in this. The goblin is the “work place loan”.
It is arranged and sponsored by a company with a third party lender. It allows an employee, that can’t get a conventional loan, to borrow against future earnings and can be paid off by payroll deductions over one or more pay periods. Several companies have jumped on this wagon, for some reason that I can not fathom. It is simply a method of allowing and even encouraging an employee to mismanage his/her income.
These “shadow lenders” take an up front closing fee of $8 to $25. With those fees plus a high APR, often more that 38%, the total interest paid on a loan of this type can run 55%-165%. There seems to be some 100,000 employees currently in such programs, mostly those living pay check to pay check. Current projects are that the programs will increase to 1 million or more in the coming months.
I have to wonder about the corporate ethics of participating in these programs. What do you think? Is it ethical for a company to help an employee go deeper into debt and to live off of future earnings? Is it even proper for a company to get involved in their employees personal income management? Should they instead offer seminars on money management?