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Are Workplace Loans an Answer?

March 2, 2014
Plain English Version

Woman looking stressed at her deskIt is well known that Payday loans are very short-term, high interest rate loans. Workers take them out to cover expenses, such as electric bills, until payday.

State and federal authorities are looking at the practices of Payday lenders. Many think these lenders are taking advantage of borrowers in need. Since 2008, it has been much harder for lower-income workers to get loans from regular banks.

The Payday lenders are using Indian tribes, which are sovereign states. They are also using the Internet. It is very hard to track them down.

Some companies are offering employees workplace loans that look a lot like Payday loans.

Companies do not make or service the loans. They select a lender, who may be much like a Payday lender. The lender charges a fee to the borrower to make the loan. They charge interest on the loan. The interest rate may be as high as 100% to 165% annually.

Companies say their workplace loans carry lower interest rates. They are trying to make them “user friendly.” This includes automatic deduction from workers’ paychecks.

Some workplace lenders in states such as California are charging much lower interest rates than others.

The U.S. Postal Service said it is also looking into making loans to lower-income people.

There is a saying: “Beware of a wolf in sheep’s clothing.” It means that even if something looks right, it may be hiding something that is wrong.

Source: The Wall Street Journal                                                                                                                                                        December 15, 2013

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