Lending data shows demand for small dollar loans is rising. Yet analysis by the Corporate Coalition of Chicago and the Woodstock Institute finds that even when banks and credit unions offer lower-cost consumer loans, many people with limited credit still turn to more expensive options. Why? Their need is urgent, so speed outweighs cost; they assume they’ll be denied by traditional institutions; or they simply prefer the anonymity of online lenders and pawn shops.
For companies that want to ensure that their employees can cover unexpected costs, the best option is to ensure they have access to affordable small dollar loans — but how? Luckily, there’s a model that already exists and we’re bringing it to Chicago.
Nearly 20 years ago, Rhino Foods — the Vermont-based company behind the cookie dough in your favorite ice creams — teamed up with NorthCountry Federal Credit Union to pilot an employer-sponsored small dollar loan. Employees in good standing after at least six months of employment could receive a same-day loan from the Credit Union of up to $1,500, repaid over six to 12 months through payroll deductions. Once the loan was repaid, the deductions continued into an emergency savings account unless employees opted out. Up to 95% stayed in, enabling them to build savings for a rainy day. There is no credit check, the interest rate is roughly half that of other alternatives, and the repayment rate hovers between 96% and 97%. Finally, because repayments are reported to credit bureaus, employees can build credit, helping them become eligible for auto or home loans. This isn’t just helping employees when they’re in a pinch — it’s a pathway to wealth-building.
Through the Rhino Foods Foundation (RFF), the model has since expanded to 10-plus lenders and 300-plus employers from New York to California, disbursing tens of thousands of loans since the model launched. Participating companies report retention gains of up to 20%, and two-thirds of employees say the benefit sets their employer apart. Utilization often circles around 20%, regardless of industry. Meanwhile, lenders see higher deposits and more auto and mortgage loans among participating employees. According to Jeff Smith, NorthCountry’s senior vice president of lending, this program is profitable.
Now this proven approach is launching in Chicago. We’re working with banks, credit unions, companies, and RFF to pilot the program — starting with Great Lakes Credit Union and with more banks preparing to join next year — partnerships that will give employees a lifeline in emergencies and a pathway to financial stability.
If you are an employer or lender, we hope you’ll join us. A shared commitment from every sector to making our city better is how Chicago gets things done.
