By Mary Arnold
Harvard Business School's case study method, used here at Advanced Leadership Institute, is so engaging, I think it might be hard for me to learn any other way from now on. What happens is you read about a real situation at a real company, answer questions about the case with your group, then work through it in class with the instructor. The reading and group meetings result in a lot of preparation (and less time for blog posts), but the classes just fly by because they are interactive discussions with a lot of takeaways, not lectures.
Tuesday we looked at a company called E-Duction Inc., which offers a no-interest MasterCard, the CLEAR card, through employers. Employees who want the card pay an annual fee of $36-48, but there is no credit check. Payments are made through payroll deduction, with charges generally being paid over four bimonthly paychecks (health- and education-related charges can be paid off over six months). Credit limits are set at 2.5% of salary.
E-Duction, which works with a large bank and another partner to facilitate this, provides monthly statements to employees, detailing each charge and how many payments remain until it is paid off. Employers do not see the detailed charges, just the total amounts to be withheld from the paychecks.
Through an ATM, employees may also take "salary advance" loans of up to half their credit limit for a fee of $10 or 5%, whichever is greater. There is also an over-limit fee of around $35 that is not charged more than once a month.
I see many benefits for employees here: ability to get a card even if you have bad or no credit, way to establish or build up a credit history, low risk of getting in over your head, interest-free borrowing. For employers, it can reduce admin work if they're already offering employee loans for equipment, education, etc.; provide a no-cost benefit and perhaps increase employee productivity if the cards put them in a better place financially. The salary advance loans seem a little dangerous, but certainly no more so than the alternatives if staff are getting them anyway.
The question I have is: Couldn't credit unions do this?
Mary Arnold is VP/publications for CUES and editor of Credit Union Management magazine.
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