TUCSON, Ariz. — Adopting a novel approach to payday lending, the $1.1 billion Arizona State Credit Union is partnering with a Tucson health care employer to help its workers "break the debt cycle" to payday shops.
"This is kind of a new idea in which one employer has come to us for assistance," explained Paul Stull, senior vice president-marketing at Arizona State which plans to offer $750 "FlexCash" loans to workers at University Medical Center Foundation Aug. 1.
The foundation, a nonprofit with close ties to the University of Arizona and a medical complex employing 3,300, approached the CU earlier this year about employees getting into difficulty using payday firms and overextending loans on an in-house "Emergency Assistance" program.
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"We're very glad the credit union was willing to take on the risk and work with us to take on these kinds of loans," explained Kent Rollins, foundation president.
Under FlexCash, Arizona State has agreed to assist foundation employees in paying off the high debt payday credits under a 60-day repayment plan with a $35 fee plus required financial counseling through Balance, the San Francisco financial education firm.
In addition, Arizona State conditions loans on employees being referred by the foundation, requiring opening a savings account and using direct deposit. The credit union also spells out in the fine print that the $35 fee equates to a 42% rate over the six-month term.
In literature sent to foundation employees, Arizona State said it understood their dilemma in "getting back on track by continuing to pay the unrealistic fees of payday loans."
"The FlexCash loan program is here to get you out of the payday loan cycle," promised Arizona State. "We pay off your payday loan and give you a much more realistic and affordable plan."
Rollins said there are currently 260 users of the foundation's "Emergency Assistance" program and of those about 60 will use FlexCash.
Rollins said the foundation recognized on-the-job stress of employees trying to cope with the payday loans and decided something needed to be done.
In discussing the program, Arizona State, a statewide CU with headquarters in Glendale, a Phoenix suburb, noted that employees find themselves unable to make a rent or mortgage payment when payday loans are extended numerous times leaving the borrower with no way to meet basic needs.
The result: "high turnover, family discord, stress and poor job performance can result from financial problems" and this comes "at a high cost to employers who must recruit and train new people," said Arizona State.
In approaching Arizona State, Rollins said the foundation sought to assist its employees who were in the grip of the payday lending-spiral paying off loans at 300-400%. He said the foundation is indeed grateful to the CU for its willingness to work out a program realizing these can be high-risk loans.
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