Sacramento can’t claim to have started too many trends. But there is an idea that started here that has now spread statewide: payday loans for legislative staffers during our annual budget crisis.
Golden 1 Credit Union started the trends in the early 1990s, offering low-to-no interest loans to legislative staffers who weren’t getting paid during a budget standoff. The Sacramento-based Golden 1 still remains the largest provider of such “payday” loans. But credit unions across the state are now getting into the act, sometimes offering the service to just a few members.
“It was often the district folks who said, hey, I belong to a credit union in Redwood City or San Diego, do you think they would do it?” said Keri Bailey, director of state government affairs for the California Credit Union League. “New credit unions came online this year that had never done it before.”
While there have long been payday services available to Sacramento-based staff, recent years have seen some anecdotal evidence of district staffers being left out in the cold. This is something local credit unions have been trying to address—and maybe use to attract members in the process.
“Redwood Credit Union has done this for years,” said that company’s COO, Anne Benjamin. “We look at it as a member service. It’s really core to what the credit union is all about.”
Benjamin said Redwood has offered the service since about 2002. This year, they have five members taking advantage of it—out of 143,000 customers, with $1.8 billion under deposit.
That’s a fraction of what Golden1 is dealing with. CEO Teresa Halleck said they serve about 1,100 legislative staffers who have taken advantage of the program this year, borrowing a total of about $9 since the budget went delinquent back on July 1. Members who already banked with Golden1 when the standoff started and had direct deposit are eligible for zero-interest loans. Other legislative staff can get very low-interest loans, she said.
There is a cost to the company, Halleck said. Because this is $9 million the company can’t loan or invest elsewhere, they have lost an estimated $45,000 so far. But this money is pretty insignificant compared to what the company and their customers get out of it, she said.
“The budget loans started at Golden1,” Halleck said. “For the state employees who have been around a few years and know that, it means a lot to them and they’re very loyal.”
So loyal, in fact, that some make sure new staffers know about the program. Take Mercedes Florez. A self-describer Capitol “old-timer,” she’s now the capitol director for freshman Assemblyman Tony Mendoza, D-Artesia. Some of Mendoza’s staff had never experienced life in the Capitol—or the late summer/early fall pay disruption that now seems to be an annual event.
“Because I made sure everyone went through Golden1, that’s not a problem for us,” Florez said.
Some larger banks are now offerings the loans as well, including Washington Mutual and Bank of America. But where the practice really seems to have caught on is with credit unions, which are popular with public employees around the state.
Another local credit union, Schools Financial, has been offering the loans since 1995. Spokesman Nathan Schmidt said they have 35 members who have taken out about $100,000 under the program. Schmidt said they have similar loan programs to benefit their main customer base, teachers and other school employees. With some teachers being laid off earlier this year due to budget cutbacks, and others going through a semi-annual process of being laid off and hired back as districts wrestle with their budgets, these loans can be important to getting teachers through tough times. But many try not to use the programs, he added, trying to live off of savings as much as possible.
“Teachers are pretty conservative with their funds,” Schmidt said. “Members weren’t coming in bombarding us or anything.”
While the cost-benefit analysis seems pretty clear for most of these credit unions, that equation could have been greatly changed if Schwarzenegger had gotten his wish and been able to reduce all but a few state workers to the federal minimum wage of $6.55 an hour. Controller John Chiang blocked the move, and the governor’s order is now tied up in court.
If the order had gone through, Halleck said, Golden1 would have started taking losses of $250,000 a month. That’s because the company’s policy is to offer the low-to-no interest loans to all state workers facing budget-related pay disruptions. This was a leftover from the early 1990s, when a delayed state budget caused all state workers to get only IOUs.
“We would have to go out and borrow that money, about $100 million if the state workers were affected in mass,” Halleck said.