For many Americans, a “small” expense can be a big problem.
The Federal Reserve reports that almost 40% of people in the United States wouldn’t be able to pay an unexpected $400 bill. The Fed’s Survey of Household Economics and Decision-making states that 27% of respondents would need to borrow money or sell something to pay the expense, while 12% said they wouldn’t be able to cover it.
What should this 40% do when they need a new transmission? Or if they suddenly need to cover unforeseen medical costs? Many turn to payday loans and, in turn, lose even more financial stability because of it.
The good news? One fintech is helping consumers to avoid exorbitant payday loan interest rates through an employer-based loan alternative. Enter TrueConnect.
TrueConnect offers a healthy way to recover from financial emergencies and is available to more than 1,200 employers across the U.S. The company is featured in Fintech4Good, and one of many financial technology companies looking to change the way we bank.
Creating the Solution
TrueConnect Cofounder Doug Farry saw the negative effects of payday loans first-hand. Living near a large naval base in San Diego, Farry learned that a number of service members weren’t eligible for a security clearance due to their payday loan debts.
“This cost many of them their ranks or opportunities to be promoted because they got trapped in these loans,” said Farry.
Farry wanted to fix the problem, but he knew crafting a solution would be difficult. For starters, a healthy loan alternative would need to lower interest rates while still being profitable. It would also mean that participants couldn’t take out more than they could afford.
TrueConnect, offered through Employee Loan Solutions, fixed both of those problems. The fintech offers year-long loans to employees that only allow participants to take out up to 8% of their salary. This way, the loan is large enough to be useful, but an amount that isn’t too difficult to pay back.
All employees in the program receive the same interest rate, do not need to provide a credit score to be eligible and receive free financial counseling.
Partnering with Sunrise Banks
The partnership between TrueConnect and Sunrise Banks was the perfect marriage. When Sunrise was approached by TrueConnect, the bank was already looking for a way to fight the payday loan crisis.
“They emulated our values, and wanted to be open, honest and one hundred percent transparent,” said Sunrise Banks CEO David Reiling in his book Fintech4Good.
Sunrise has been the bank supporting TrueConnect since the fintech got its start. Sunrise was also the first employer to offer the benefit to its employees.
TrueConnect sets a loan limit at $3,000 with an interest rate of 24.99%, no matter your income. It also lets employees apply for a loan anonymously; employers aren’t aware which workers are using the program.
Expanding Community Banking Through Fintech
Sunrise partners with Fintechs like TrueConnect for two reasons: For one, the product is helping low- and middle-income consumers; and, it’s doing so with integrity and compassion.
And that’s exactly what we think Fintechs should be doing: solving problems of financial inclusivity as a way to expand the reach of community banking. Consumers deserve a financial sector that helps, rather than hinders, their ability to become economically stable.
There also needs to be a realization that the problem of covering unexpected expenses is more common than we think.
“There’s a misperception among some business leaders that this is somehow a problem of the unemployed or homeless,” said Farry.
The FDIC’s numbers indicate otherwise. Sunrise Banks continues to strive for a more equitable financial system through its work with partners like TrueConnect. To learn more, check out Fintech4Good.
Photo credit: Federal Reserve Bank of Minneapolis