SOUTH BURLINGTON, Vt. (7/21/08)--During a strategic planning session, NorthCountry FCU identified payday lending as a consumer problem it wanted to address, and has developed a product to help--the income advance loan. Bob Morgan, vice present of lending and administration for the $192 million asset, South Burlington, Vt.-based credit union, researched payday loan alternatives and eventually chose a model created by the Ohio Credit Union League, according to the Association of Vermont Credit Unions (Newslines Express July 18). “In the credit union industry, they have the most experience and longest history with payday loan alternatives,” Morgan said. “Their help was instrumental in getting our program off the ground.” Morgan needed buy-in from a local employer to launch the program. He found it with Justin Worthley, general manager at Rhino Foods, which for years had allowed employees to take advances on their pay for short-term credit needs. Because the program proved too cumbersome to manage, it was eventually discontinued. Worthley, however, saw a need for continued quick access to cash for his low- and moderately-paid employees. He contacted NorthCountry, and the income advance program was created and offered to Rhino Foods employees as a benefit. Since its inception, Worthley says employees have used the loan program for emergency expenses including car repairs, home repairs, and international travel to attend a funeral. “In our current economy, trying to provide cost effective and meaningful benefits to low- and moderately-paid employees is becoming increasingly important for employers when recruiting new people,” said Morgan. “The income advance program is one way to meet that goal.” In July, the fixed annual percentage rate for the loan was 16.99%--below the online lenders’ rates of over 400%--for a term of up to six months. Borrowers repay their loans through an automatic payroll deduction each pay period. An employee is limited to one loan at a time. The borrower pays no fee for the service. Although the income advance loans are riskier than some other types of loans, the delinquency rate so far has been only 0.5%--lower than NorthCountry’s average delinquency rate for all loans, according to the association. “This program has given us a way to help our employees build financial resources,” Worthley said. “Instead of ending an employee’s payroll deduction when the loan is repaid, we tell people ‘We’ll shut it off when you tell us to.’ Additional payroll deductions are set aside in a savings account. People have gone from a cash crunch situation to building up savings for things like a home or an upgraded vehicle.” “For many, it is a safety net for week-to-week needs,” Lorri Miller, human resources generalist at Rhino Foods said. “Our folks are very appreciative of this benefit and without fail they all let me know how much this means to them and how much worry and stress we are removing from their lives. It is extremely satisfying to help so many of our employees with income advance.” Employers pay an annual fee to participate in the credit union’s income advance program. In return, their staff members are automatically approved for immediate cash advances up to $1,500. Employees also receive counseling about how to avoid future financial emergencies. In addition to Rhino Foods, two other local employers have signed on for the service. Other local companies have contacted NorthCountry to discuss adding the program to their benefit plans. NorthCountry offers the program, which has an average loan balance of about $650, as a community service.