The 0% Loan: Why a Dozen Lenders Are Leaning into the Novel Idea

A dozen credit unions are offering their employees (and, in some cases, employees elsewhere) a 0% loan to cover emergency expenses. There's no catch either. Quite the opposite: Those who pay off the loan over 12 months as prescribed and sock away some money in a savings account can earn a cash reward. A nonprofit called the Community Impact Fund is behind the no-interest, no-fee loan product, which is intended to give people a better option than using payday lenders or withdrawing money from their 401(k) accounts. The nonprofit says it also aims to help credit unions stand out. Hear from a handful of credit union leaders about their experiences with offering this unusual product.

Credit unions are finding a lot to like in a zero-percent loan product developed by a Colorado nonprofit called the Community Impact Fund. More than half a dozen credit unions nationwide have rolled out the product, primarily for their own employees.

The challenge lies in bringing the loan — and its benefits to borrowers — to a wider audience. Credit union leaders say they are considering various approaches to offering the loans in their communities but that they also want to ensure the product works as advertised.

“This thing can’t blow up in our face,” says Doug Chambers, president and chief executive of Lookout Credit Union in Pocatello, Idaho, which introduced the zero-percent loan to employees in November 2022. “It has to be something that we know backwards and forwards.”

When Lookout came across the Community Impact Fund, it had been searching for a product and a partner that could help reduce people’s need for high-interest lenders, says Chambers. The loan product from the fund comes close to what Lookout had in mind, he says. “So it was an easy, smooth partnership with them.”

The fund administers and underwrites the no-interest and no-fee loans of between $500 and $3,000 that must be repaid over 12 months. The loans, most often offered as a form of employee benefit, are generally used for emergency expenses.

Borrowers also benefit from an incentive to start saving money for future emergencies once their loans are repaid. The fund will match their savings up to 10% of what they borrowed. So, a person who repays a $1,000 loan and then saves $100 is eligible to receive a savings match of $100.

People who take less than 12 months to repay the loan are not eligible for the incentive. This requirement is meant to keep people from taking out a loan that they don’t really need, then repaying it fast, simply as a way to take advantage of the savings match.

How the 0% Loan Program Works

Each of the participating financial institutions sets up a fund to facilitate the lending it plans to do.

One benefit is that borrowers apply for loans through the Community Impact Fund, rather than through their employers, preserving privacy, credit union executives say.

The nonprofit suggests how much should be put into the employer’s fund, using benchmarks such as the percentage of people in an employer’s community who fit the definition of the United Way acronym ALICE. This stands for “Asset Limited, Income Constrained, Employed.”

The average fund is between $65,000 and $70,000, says Mike Scheid, executive director of the Community Impact Fund.

Mike Scheid all-credit-unions-have-a-unique-origin-that-centers-around-community-coming-together.

All employees are typically eligible for the loans, as they would be for any employer benefit, Scheid says. While loan repayments replenish the funds, the money does dwindle over time due to the savings match and unpaid loans. Employers then have to decide whether to replenish their funds.

Payments on the loans are not reported to credit bureaus, so it is not a credit-builder type of product.

That’s because while borrowers might have added points to their credit scores when they repay the loans, the nonprofit did not want those who missed a payment to end up worse off after using a product meant to help them, Scheid says. “One of our tenants is do no harm. And you can’t report the good and not report the bad. We felt like the bad was more harm than the good was good.”

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Lookout Credit Union’s Experience with the 0% Loans

Lookout established its loan pool with an upfront donation of $100,000, Chambers says. Only the credit union’s 90-some employees are eligible for the zero-percent loans, which can help with managing surprise expenses such as engine repairs or a new furnace, Chambers says. In the initial four months after the product launch, fewer than 10 employees had borrowed from the fund.

The credit union wants a year of experience before deciding what’s next for the product, Chambers says. “This way, we can work out any kinks and answer any questions that happen before we roll it out to communities with high need.”

If all goes well, Lookout would like to offer the loan product through its employer groups, he says. The credit union, which has more than 27,000 members and assets of more than $323 million, primarily serves educational institutions, such as Idaho State University and the College of Eastern Idaho.

The zero-percent loan could be an attractive benefit for employers to offer, Chambers adds.

According to the Employee Benefits Research Institute, 35% of employers offered emergency funding or hardship assistance to employees in 2022, up from 31% in 2021.

An Employee Benefit That's Becoming More Common:

The share of employers that offered their employees emergency funding or hardship assistance as of 2022:

The loans also can help credit unions stand out at a time when consumers are thinking more about the financial institutions they use, following several high-profile bank failures.

Scheid says the Community Impact Fund is all about helping credit unions differentiate themselves. “All credit unions have a unique origin that centers around a community coming together to support one another’s financial well-being,” says Scheid. “One of our goals is to help them recapture that origin story in a new, powerful way.”

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A Loan for People Who Lack the Savings to Cover an Emergency Expense

Interra Credit Union in Goshen, Ind., has been exploring ways to address the needs of people who are struggling financially, says David Birky, its chief strategy officer.

An often-cited statistic from the Federal Deposit Insurance Corp. holds that 40% of U.S. households don’t have $400 in savings to cover an emergency expense, Birky says. Interra’s leaders reckoned that a similar share of their own employees could be in the same predicament, which eventually led them to the Community Impact Fund.

“I really believe that it’s no longer enough just to say that we’re not part of the problem,” he says. “I think we have to make a meaningful impact in the communities that we serve.”

Interra began offering its 320-plus employees the zero-percent loans through the Community Impact Fund in February 2021, Birky says. The credit union, which has nearly 92,000 members and assets of about $1.7 billion, contributed $50,000 to start.

“I really believe that it’s no longer enough just to say that we’re not part of the problem. We have to make a meaningful impact in the communities that we serve.”
— David Birky, Interra Credit Union

“It’s been the easiest implementation of just about anything that we’ve done,” Birky says. “There really was not much required.”

The program has been well-received among employees, he adds, noting that the anonymity of borrowers has been one of the most appealing aspects. But the credit union is looking for ways to better communicate that these loans are available.

Interra also has been considering whether to offer the no-interest loan program beyond its own employees, Birky says. It is weighing this option along with other products and services that might benefit people who are struggling financially.

“For us, this is absolutely a journey,” he says.

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“Rainy Day” Savings Accounts as an Employee Perk Too

Chrome Federal Credit Union in Washington, Pa., was another early adopter of the zero-percent loan product from the Community Impact Fund, having started offering it to employees in 2021.

Though it considered making the loans available more widely, it pulled back over concerns about how to fund that lending, says Robert Flanyak, the treasurer, president and CEO at Chrome, which has about 14,500 members and assets of $196.8 million. “Let’s say it was a friction point,” Flanyak says.

One idea was to add a monthly surcharge to checking accounts, but the credit union ultimately decided against that.

Instead, Chrome has partnered with a retirement plan provider, Carnegie Investment Counsel, on a work-based program to encourage savings. The provider offers employers a program that lets employees set up “rainy day” savings accounts through payroll deductions and employer matches. The idea is to keep people from having to borrow from their 401(k) plans.

The credit union opens the savings accounts for the Carnegie program, Flanyak says.

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Credit Union Aims to Include Employees of Nonprofits in Its 0% Loan Program

Like other institutions, CBC Federal Credit Union in Oxnard, Calif., first rolled out Community Impact Fund loans to its roughly 128 employees. But in early 2023, CBC began offering loans to the 12 employees of Big Brothers Big Sisters of Ventura County, using the same fund it had established for itself.

“I’m not sure if anybody’s had to use it yet, but they were very happy and receptive for this opportunity,” says Daniel Bednar, chief strategy officer at CBC, which has about 27,500 members and assets of nearly $789 million.

CBC, which is also a community development financial institution, hopes to bring the program to the employees of other nonprofits in its community, Bednar says. The question is how much money the fund will need as the pool of potential borrowers grows. The CBC fund started with more than $100,000 and Bednar expects more may be needed to support an expansion.

But even as it grows, the loan program at CBC will be limited to nonprofit employers, he says. “We’re a not-for-profit. We want to support other not-for-profits that are in the same field as us.”

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