Vol I • Issue I

The Federal Reserve Bank of Richmond

2010 Community Community

Community Affairs Department

I

n the last decade, payday lenders emerged 

as the “go to” place for many consumers 

facing a cash crunch between paychecks. 

Today, alternative payday loan products are 

gaining the attention of employers who see an 

opportunity to provide their employees with 

a similar service but at a lower cost.1 This article 

highlights several employer-sponsored loan 

programs in Virginia that provide innovative, 

lower cost alternatives to payday loans.

Background

Payday lending began to expand rapidly in 

Virginia with the passage of the Payday Loan 

Act in 2002. This law made payday lenders 

exempt from the 36-percent interest rate limit 

that applies to loans made under the Virginia 

Consumer Finance Act, which covers loans of 

$500 or less. As a result, payday lenders could 

charge fees and interest rates equivalent to an 

annual percentage rate of up to 782 percent 

for a one-week loan, more than 20 times the 

maximum that other lenders can charge for 

small dollar loans.2

The payday lending industry in Virginia grew 

from 604,087 loans and $165 million in total 

loan value in 2002 to approximately 3.5 million 

loans and $1.4 billion in total loan value in 

2007.3 Also in 2007, the average Virginia payday 

borrower held more than seven loans, with 

approximately 94,500 Virginians taking out 

more than 13 loans from the same lender.4

In 2008, to respond to the growth in payday 

lending, the General Assembly amended the 

Virginia Payday Loan Act to prohibit payday 

lenders from the following actions:

• Making more than one loan during the same 

time period to a borrower; 5

• Renewing or extending an existing loan; 

• Charging more than 36 percent simple 

interest annually, more than $100 (or 20 

percent of the principal amount advanced) 

in fees and more than $5 per transaction fee; 

• Lending more than $500; and

• Lending to military personnel and their 

spouses or dependents.

The amendment resulted in a significant 

decline in the volume of payday loans in 

Virginia. Figure 1 shows that the total loan 

value fell to $170 million in 2009 (less than 

500,000 loans).

To respond to the financial needs of their 

workers with short-term cash emergencies, 

some Virginia companies have started to 

experiment with payday lending alternatives 

in partnership with credit unions. Credit 

unions and employers have a tradition of 

developing an affiliation or partnership 

that provides special financial products and 

Employer-Sponsored Alternatives 

to Payday Loans in Virginia

By Courtney Mailey
The Federal Reserve Bank of Richmond • MarketWise Community

Community Affairs Department

2

services targeted to the needs of employees. 

These specialized financial products now 

include alternatives to payday loans that 

are convenient, small-scale loans with 

better pricing and repayment terms for the 

employee-borrower.

Figure 1.

Source: Bureau of Financial Institutions, State Corporation 

Commission, Commonwealth of Virginia.

Benefits to Employees/Borrowers

A 2009 survey of Virginia state government 

employees indicates that the greatest 

benefits of an employer-sponsored payday 

loan alternative are the access to a loan 

fund without checking credit scores; a quick 

and easy application process; a loan that is 

confidential in manner without the direct 

knowledge of the borrower’s supervisor; and a 

direct debit service through payroll that makes 

repayment easy.6

In addition to these advantages, alternatives to 

payday loans provided through credit unions 

provide the opportunity to develop a longterm relationship with a financial institution 

that could help the borrower transition into 

mainstream financial products. (See sidebar on 

credit unions.) As employees become more 

financially stable at home, they can also become 

more productive and focused at work, leading 

to better overall job performance.

The following highlights the alternative 

payday lending programs for employees 

offered by selected Virginia employers: 

Langley Air Force Base, Virginia state 

government, Goodwill of Central Richmond 

and Riverside Health Systems.

Langley Air Force Base –

Langley Federal Credit Union 

Langley Federal Credit Union of Hampton, 

Virginia, started its QuickCash program in 2004 

after senior officers at Langley Air Force Base 

became concerned about the impact of payday 

lending on workforce readiness among their 

airmen. “There are a number of advantages 

that payday lenders provide that should not 

be overlooked when low-cost competitors are 

putting an alternative product together,” says 

Brett Noll, senior vice president of marketing at 

Langley Federal Credit Union.7 Payday lenders 

are competitive because they offer convenient 

business hours, convenient store locations, 

quick service with few hassles and they allow 

borrowers to possibly avoid credit score 

impairment that result from late payments. 

Using a payday lender also has the advantage 

of avoiding the embarrassment of requesting 

a cash advance directly from one’s employer. 

Langley Federal Credit Union’s QuickCash 

program offers some of the same benefits 

as payday lending but keeps the cost of 

borrowing down. A QuickCash loan of up to 

$1,000 at 18-percent simple interest can be 

paid back via direct payroll deduction over a 

period of up to 31 days. Repeat borrowers are 

monitored for additional attention by credit 

union staff. If a borrower uses the payday 

alternative product more than three times, 

Langley Federal Credit Union staff are trained to 

ask the borrower questions to assess whether 
The Federal Reserve Bank of Richmond • MarketWise Community

Community Affairs Department

3

the credit union can offer a more appropriate 

product better suited to the borrower’s needs. 

Additionally, Langley Federal Credit Union 

staff members encourage repeat borrowers 

to open a savings account and enroll in the 

credit union’s financial counseling or education 

classes. These support services are offered to 

help open additional longterm financial options to 

the borrower. Since the 

program started in 2004, 

Langley Federal Credit 

Union has loaned about 

$23 million and saved its 

members about $3 million 

in payday lending fees.8

Virginia State Employee Loan Program – 

Virginia Credit Union

Like Langley Federal Credit Union, Virginia 

Credit Union is working with employers on 

payday-lending alternative programs for 

their employees. In July 2009, the Virginia 

State Employee Assistance Fund approached 

Virginia Credit Union to help develop the 

Virginia State Employee Loan Program. The 

idea “didn’t start as an alternative to payday 

lending per se,” says Anne Dinterman, manager 

of the Commonwealth of Virginia Campaign at 

the Virginia Department of Human Resource 

Management, “but we found that some of the 

people applying for our employee assistance 

fund in the past four years had deeper financial 

problems. They could benefit from financial 

education and the credit union could offer 

that in addition to the loan.”9 A Virginia State 

Employee loan of up to $500 can be borrowed 

at about $8 to $9 per hundred borrowed or 

an annual percentage rate of 24.99 percent 

and be paid back via payroll deduction over a 

period of up to six months. According to Glenn 

Birch, director of public and media relations 

at Virginia Credit Union, “This is a product 

designed to serve our members, to be helpful. It 

is not a lucrative product for our credit union.”10

The Virginia State Employee Loan Program 

can be accessed online by state employee 

credit union members. An online financial 

education tutorial for the loan program is a 

mandatory prerequisite 

for downloading the loan 

application. When an 

employee is approved 

for the loan, he or she 

prints a hard copy of the 

direct deposit or credit 

agreement page and 

delivers it to his or her 

agency’s payroll office for processing. A hard 

copy of the loan application, the program credit 

agreement, and a Virginia Credit Union direct 

deposit form is then submitted for processing 

to the State’s payroll system. “Employees 

borrow for all sorts of reasons – a child needs 

books for the first year of college, a car needs to 

be repaired to get to work, or medical expenses 

arise unexpectedly,” says Dinterman, “this 

program helps people in a temporary pinch.”11

From July 2009 to mid-February 2010, the 

Virginia State Employee Loan Program loaned 

more than $1.7 million.12

Goodwill and Virginia Credit Union 

In January 2010, Virginia Credit Union began 

pilot-testing another payday lending alternative product, GoodChoice, in partnership with 

Goodwill of Central Virginia and St. James’s 

Episcopal Church. When Goodwill realized that 

10 payday lending storefronts had opened 

up within one mile of its Richmond, Virginia, 

facilities, they began working with Virginia 

Credit Union to try to develop a product for 

employees at both Goodwill and Virginia 

Credit Union that would compete with a 

standard payday loan product. “GoodChoice 

From July 2009 to 

mid-February 2010, the 

Virginia State Employee 

Loan Program loaned out 

more than $1.7 million.
The Federal Reserve Bank of Richmond • MarketWise Community

Community Affairs Department

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provides clients with a short-term loan that 

mirrors many of the features that make 

payday loans appealing to borrowers, but with 

important distinctions,” said Jane Watkins, 

president-CEO of Virginia Credit Union, such 

as a payback period of up to 45 days, no 

prepayment penalties, and a rate of $12 per 

hundred borrowed.13

Like the other alternative payday products, 

GoodChoice offers financial education to 

borrowers at no cost. “Goodwill was interested 

in GoodChoice because lack of financial 

skills and reliance on payday lenders is a 

common barrier to success for our clients,” 

said Charles Layman, president-CEO of 

Goodwill Industries.14 In addition to six hours 

of classroom training, GoodChoice offers 

one-on-one financial mentoring through 

St. James’s Episcopal Church, which was 

instrumental in securing a $200,000 loan from 

the Jesse Ball Dupont Foundation. The loan was 

used to underwrite incentives to encourage 

borrowers to participate in financial education 

programs. Borrowers who receive financial 

education become eligible for forgiveness 

of 50 percent, up to $150, off of their first 

loans. At St. James’s, “we want to help people 

break the cycle of crushing debt,” said Rev. 

Randy Hollerith, rector of St. James’s Episcopal 

Church. “GoodChoice allows people to get the 

emergency funding they need while offering 

them substantial education.” 15 Virginia Credit 

Union and Goodwill of Central Virginia plan to 

officially launch the GoodChoice loan product 

in May 2010. 

Riverside Health Systems – 

Employee Credit Union 

Riverside Health Employees Credit Union, 

based in Newport News, Virginia, offers two 

financial products for health system employees 

designed as alternatives to traditional payday 

loans: Payday Relief loans and Helping Hand 

loans. In order to reduce risk to the credit union 

and costs to the borrowers, Riverside Health 

Systems redirected and deposited $100,000 

at the credit union as security for the two 

loan programs. 

For employees unable to repay payday loans in 

full and thus caught in a succession of payday 

loan renewals, or rollovers, the Payday Relief 

Loan Program allows Riverside employees to 

borrow up to $2,000 over a period of up to 21 

months at 18 percent simple interest to clear 

their payday loans permanently. Mandatory 

financial education affiliated with the Payday 

Relief loan is intended to build the employee’s 

knowledge of alternative sources of short-term 

small loans as well as strategies for saving and 

becoming more financially stable. Since the 

initial spike in lending at the program’s launch, 

demand for the Payday Relief product has 

diminished since many credit union members 

have cleared their debts and no longer use 

payday lenders.16

Helping Hand loans allow credit union members 

to borrow up to $500 at 18 percent simple 

interest that can be paid back over a period of 

eight months to help employees recover from 

brief disruptions in their income.

The alternative loan products have also benefitted the employer and the credit union. 

“When I first became aware of the use of 

payday lending among our employees, I was 

determined to make sure that they had a more 

affordable way to access small emergency 

loans,” says Rick Pearce, CEO of Riverside Health 

Systems.17 While Pearce hesitates to attribute 

Riverside’s increased employee retention rate 

to the payday lending program alone, he 

believes that it has had a positive impact on 

employee commitment. Janet Harris, CEO 
The Federal Reserve Bank of Richmond • MarketWise Community

Community Affairs Department

5

of the Riverside Health System Credit Union, 

thinks this is because “a reduced debt burden 

means an employee is less stressed and can be 

more focused at work” and has seen Riverside’s 

credit union membership increase since the 

two programs started.18 “Once the employee 

is out of the payday loan cycle, he or she can 

develop a positive routine with the credit 

union that builds credit and reduces debt over 

time,” says Harris.19

Conclusion

The availability of payday lending alternatives 

provided by credit unions in partnership with 

employers can help to provide convenient 

access to small loans for employees, even 

those with low or no credit scores. This allows 

employees to weather short-term financial 

hardships without the costs of traditional 

payday loans. These alternatives also give 

employees access to financial education and 

increased financing options as a member of 

a mainstream financial institution. 

Employer-sponsored credit unions provide 

benefits to employers by supporting the 

financial stability of their workforce through 

savings, credit and financial education. 

Similarly, credit unions benefit from a long-term 

relationship with employers as a source of new 

credit union members. As more credit unions 

innovate and develop payday loan alternative 

products tailored to their members, the range 

of models they offer can be further analyzed 

to identify features that lead to stable financial 

outcomes for borrowers over the long term. 

Resources: 

Credit Union National Association

www.cuna.org

National Credit Union Administration

www.ncua.gov

Langley Federal Credit Union

www.langleyfcu.org

Riverside Health Systems Employee Credit Union

www.rhsecu.org

Virginia Credit Union

www.vacu.org

Virginia Department of Human Resources

www.dhrm.virginia.gov/vaemploan

Credit Unions

The National Credit Union Administration 

defines a credit union as “a nonprofit, cooperative financial institution owned and run by 

its members. Organized to serve, democratically 

controlled credit unions provide their members 

with a safe place to save and borrow at reasonable rates. Members pool their funds to make 

loans to one another.”20

As of December 2009, credit unions comprised 

9.7 percent of total consumer savings in the 

United States, while banks comprised 68.1 

percent of savings.21 In addition, there were 194 

credit unions in Virginia holding more than $58 

million in member deposits.22
The Federal Reserve Bank of Richmond • MarketWise Community

Community Affairs Department

6

Endnotes:

1 In Virginia, a payday loan is defined as “a small, shortmaturity loan on the security of (1) a check, (2) any 

form of assignment of an interest in the account of an 

individual or individuals at a depository institution, or 

(3) any form of assignment of income payable to an 

individual or individuals, other than loans based on 

income tax refunds.” Virginia Code, Title 6.1, Chapter 18, 

Section 6.1-444.

2 Bureau of Financial Institutions, State Corporation 

Commission, Commonwealth of Virginia, “Supplement 

to the 2002 Annual Report of the Bureau of Financial 

Institutions: Payday Lender Licensees Check Cashers.” 

December 31, 2002. www.scc.virginia.gov/bfi/annual/

ar04-02.pdf

3 Bureau of Financial Institutions, State Corporation 

Commission, Commonwealth of Virginia, “The 2007 

Annual Report of the Bureau of Financial Institutions: 

Payday Lender Licensees Check Cashers.” December 

31, 2007; and Bureau of Financial Institutions, State 

Corporation Commission, Commonwealth of Virginia, 

“Supplement to the 2002 Annual Report of the Bureau 

of Financial Institutions: Payday Lender Licenses Check 

Cashers.” December 31, 2002. www.scc.virginia.gov/

bfi/annual/ar04-02.pdf and www.scc.virginia.gov/bfi/

annual/ar04-07.pdf

4

 Ibid.

5 The amendment also required the creation of a realtime database to which payday lenders must report 

the identity of a borrower and the amount borrowed. 

Since January 1, 2009, Virginia payday lenders have been 

required to search the database prior to extending a loan 

to verify that the borrower is eligible to receive financing 

according to the amended law.

6 Virginia Department of Human Resource Management, 

Survey of Virginia State Employee Loan Program 

Borrowers, August 2009.

7 Nolle, Brett, phone interview, February 12, 2010.

8

 Ibid.

9

 Dinterman, Anne, phone interview February 16, 2010.

10 Birch, Glenn, phone interview, February 12, 2010.

11 Dinterman interview.

12 Dinterman interview.

13 “An Alternative to Payday Lending: Community 

Partnership formed to ‘Break the Cycle.’” 

February 12, 2010. Press Release

14 Ibid.

15 Ibid. 

16 Harris, Janet, phone interview, February 12, 2010. 

17 Pearce, Richard, phone interview, February 17, 2010.

18 Harris interview.

19 Ibid.

20 National Credit Union Administration, www.ncua.gov. 

21 Credit Union National Association, “Credit Union Report 

Year-end 2009.” http://advice.cuna.org/download/

curepd09.pdf

22 Ibid.