With payday loans coming under fire from legislators and consumer groups all over the United States, another way for the poor and underprivileged to get money.
When things get tight and employees need money this need has made workplace loans gain popularity.
This practice has many concerned that by offering these loans, employers are taking over the role of the payday loan companies, and rather than helping the employee through tough times in reality are taking advantage of them.
These loans come in many different forms, from low interest long term loans to short term high interest loans and everything in between.
They all seem to have two things in common, they are offered by the employer from an outside source and the payments are deducted from the employees paycheck.
many people are afraid these loans will take the place of payday loans and become the norm for employees when they get inn a bind for money, but experts say this is a bad idea.
First, they are not regulated enough to be uniform.
If an employer offers a loan to help out an employee who is in trouble they are taking a risk that can have real bad results.
Employees should not be letting their employers know they are in trouble.
Second, there is no lesson learned in money management by deducting the payments from an employees paycheck.
This practice will result in hard feelings and all around bad energy between employers and employees, and in reality the loan payments are going to a thrird party.
What many would like to see rather than the rise of these loans would be more attention on teaching employees how to create and manage a savings plan for when situations arise that require extra unexpected expenses.
This solution would also take away the employers ability to deduct the loan payment automatically from the paychecks of the employees.
This practice serves no purpose for the employee as far as teaching them how to responsibly manage money.
Another solution would be to create a fund owned by the employees that may be borrowed against.
Anytime we can create something that helps people when times get tough without having them exposed to things like payday loan traps and high interest short term situations we all win.
Lack of regulation
As payday loans are finally getting the regulation they should have had from their inception, these workplace loans are wide open and exist in too many forms to keep track of.
The number one concern is that they are being offered by a third party by employers, thus opening the door for major abuse.
Second, they come in too many different versions.
Some are offered as long term low interest, some are short term high interest, others have no limits on how many a year an employee can take one out.
It just seems like another way to game the system and open the door to major abuse at the expense of the poor and disadvantages, a tag mostly associated with payday loan companies.
Some companies are actually setting this up the right way by offering low interest loans longer term loans with the requirements of the employees take classes on how to manage money, but the masses will not follow this avenue.
Without proper regulation this could end up being the replacement to payday loans.
While the idea of employers helping employees when times get tough seems like a noble thing to be doing, we feel the best thing for the employers to do is leave the banking business to the banks and governing agencies.
Setting up savings accounts and emergency accounts is a good idea, and if an employer can put this kind of security together for their employees we are all for it, but it must be done without any kind of profits in mind.
e would love to see low interest longer term loans as an alternative to payday loans for people who are in desperate need of emergency money, but these loans must come with guidelines to prevent abuse.
We hope this information helps you in wading through all the pitfalls of needing to borrow money!
We encourage any questions or comments you may have, please leave them below!