More and more companies are stepping in to help their workers with a much cheaper way to get emergency cash than payday loans.

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MHJ / Getty Images

More and more companies are stepping in to help their workers with a much cheaper way to get emergency cash than payday loans.

MHJ / Getty Images

Even in a strong economy, many Americans live paycheck to paycheck. Forty percent don’t have $ 400 to cover an emergency expense, like an auto repair. And many working class people are turning to payday loans or other expensive means of borrowing money. But more and more companies are stepping in to help their workers with a much cheaper way to get emergency cash.

Start-ups that give workers better options are teaming up with all kinds of businesses, from giants like Walmart to small fried chicken restaurants.

“This is where it all happens; it’s cooking here, ”says cook Keith Brown as he walks past the ovens and large bowls of flour at Lee’s Famous Recipe Chicken in Richmond, Virginia. He and the team get ready for the lunchtime rush. .

Restaurant owner Henry Loving has noticed over the years that many of his employees are burnt. Not with frying oil, but with high cost loans they would get stuck in.

“You know a lot of times the people I have who work for me are strapped for cash and they’re going to do payday loans or something,” Loving says. “And by the time I hear about it, it’s too late and they’ve got all kinds of extra problems trying to get their money back.”

Henry Loving, owner of Lee’s Famous Recipe Chicken in Richmond, Va., Saw his employees hurt by expensive payday loans, so he found them an alternative.

Peter Solomon / Ideas Stations

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Peter Solomon / Ideas Stations

Henry Loving, owner of Lee’s Famous Recipe Chicken in Richmond, Va., Saw his employees hurt by expensive payday loans, so he found them an alternative.

Peter Solomon / Ideas Stations

Brown remembers that a few years ago his brother was in the hospital and he had to travel to New York to see him. So he took out a high interest payday loan of $ 400.

“I got the loan. But it kept me in the hole and I had to keep getting loans and maybe for about three or four months to pay it off,” says Brown. He says by the time he finally paid off all the money and interest, “I end up paying double the money I got. I actually paid back about $ 900 before it was finished.”

Loving sometimes said that he lent money to employees himself, just to help them get out of those loans. “They are embarrassed to ask, but they will come to see me, and I mean, otherwise they will end up homeless or have to leave the state.”

So when Loving heard about a company called PayActiv, a tech start-up that helps companies get emergency cash for their employees for a very small fee, “I thought to myself, now this is is a good idea, ”he says. And he signed up.

Safwan Shah, the founder and CEO of PayActiv, says the need is huge because so many Americans pay very high fees and interest when they run out of money.

“Our analysis of the data showed that nearly $ 150 a month was being paid by the working poor – per employee or per hourly worker in this country,” Shah explains. “It’s a substantial amount of money because it’s about $ 1,800 or $ 2,000 a year.”

Think about it for a minute. According to the Federal Reserve, 40% of Americans do not have $ 400 in savings to repair their water heaters or for any other emergency. But Shah says they spend around $ 2,000 a year on fees and interest to get short-term emergency cash. He thought it was a problem that needed to be resolved.

Shah also realized that often people don’t need to borrow a lot of money. And he says that, in fact, workers usually have already earned the money they need because they’ve worked pretty far into the pay period. They just haven’t been paid yet.

“And so we said the problem is really a problem between the paychecks,” Shah explains.

His company PayActiv gives workers access to the money they have already earned. So, at many companies, including Lee’s Famous Recipe Chicken and Walmart, the country’s largest private sector employer, workers download an app to their phones. It is linked to PayActiv and the employer’s payroll system.

“So let’s say they’ve already won $ 900” by earning $ 100 a day for nine days, Shah says. But the payroll is still at five days and they need the money right away. Shaw says they open the app and “they’ll see a number that’s half the amount they’ve earned that’s available to them.”

So if they need $ 400 for a car repair or a trip to visit a sick brother, they push a few buttons and the money goes to their checking account or to a prepaid card. And the fee is $ 5. (Some employers pay the fees or part of them.) And many workers decide it’s a much better option than getting stuck in a cycle of debt with expensive payday loans.

The app also offers creative ways to get employees to build savings accounts so they don’t run out of cash chronically. The system uses certain techniques rooted in behavioral economics. Shah says he’s asking workers to put, say, two hours’ wages a week into savings, because workers respond better to that than to a dollar amount.

Such tools are important, of course, because the problem that companies like PayActiv are trying to solve is not just that of workers not getting paid on time to pay certain bills. It’s a more complicated problem involving the difficulty that so many Americans face in managing and controlling their finances amid all the other challenges of everyday life.

“Quite frankly, most of the United States is living paycheck after paycheck and it’s not a socio-economic problem, it’s an American problem,” said Daniel Eckert, senior vice president of Walmart. “It covers several socio-economic classes, whether you are an hourly associate or a management associate.”

He says Walmart’s approach combines PayActiv’s system with an app called Even that helps people manage their money better.

“I really think this is a game changer,” says Laura Scherler, Director of Financial Stability and Success at Centraide. She says other companies are working with employers to provide workers with real loans – more than just a cash advance on hours they’ve already worked. These are repaid over longer periods with interest.

Consumer advocates say employers should make sure their workers get a good deal. But Scherler says there are good, lower-cost loan options. “There seem to be a couple of things coming together right now that make this really exciting. I think employers are more and more aware that financial stress impacts their workers.”

And the workers seem to be very aware of this as well. Over 100 companies have now signed up with PayActiv. A Walmart executive said there had been an “extraordinary” response from employees. More than 200,000 Walmart employees now use the system.