Walmart announced plans today to create its own payday loan business to support its financially strapped employees.
In a press release posted on its website, the nation's largest retailer said that it decided to launch the service after hearing complaints that workers often have trouble paying their monthly bills.
"It has recently come to our attention that our valuable associates sometimes just can't make ends meet," the statement reads. "That's why we're creating Walmart CashNow, a payday lender available exclusively to Walmart's 1 million hourly employees.
"CashNow will help our associates get cash when they need it most at a competitive interest rate. Finally they can borrow money to pay for things like rent, gasoline, food, medical bills and child care.
"Economic studies have consistently shown that access to credit is one of the driving forces in allowing the working poor to escape poverty. By providing these loans, Walmart is helping our associates reach the next level of success."
Always Low Wages
Payday loans are small, short-term loans typically used to help low-income workers meet expenses between their paychecks. They have become ubiquitous in recent years, but are often criticized for their high interest rates and predatory marketing practices.
Although Walmart says it is protecting its employees by creating the new lender, it admits that CashNow is also expected to be highly profitable.
"We got a million people who would give anything to be able to pay their bills on time," says Walmart's human resources chief. "Obviously, our first thought was there is huge money to be made off of this. We estimate that at an interest rate of 2,900 percent APR we can bring in $10 billion a year loaning money to our own workers.
"But the best part is that because we already employ them, our associates will also be able to work off the interest rather than pay in cash. That’s a win-win. Financial flexibility for them, and cheap labor for us."
"This is completely outrageous!" says veteran union leader Edward Asner. "Employees will now be indebted to their employer with no possible way out. That is not a job, it’s slavery. If they're so worried about their workers not being able to pay their bills, why don't they give them a raise?”
Not surprisingly members of the Walton family - who remain major shareholders in Walmart - disagree with that analysis.
“Look, no one is forcing anyone to do anything," says Jim Walton, who inherited his fortune from Walmart founder Sam Walton. "You don’t have to work here and you don’t have to get an advanced pay day loan with a reasonable interest rate. These folks simply need to be more responsible in regards to spending their money.
"For example, when my family flew down to Miami for a nice get-a-way weekend last week, we could have booked several very nice executive suites at the Fontainebleau. But we didn't. We got regular suites facing the ocean and ordered the crab instead of the lobster from room service.
"To be honest, I think a lot of these folks just need lessons on living a frugal lifestyle. I mean do you really need food for yourself and for your dog? Do you really need to be treating both your heart disease and your hemorrhoids?
"Life is all about choices. And I think our employees need to start making better ones. Take this hotel for instance. I would highly recommend our associates check into a standard cityview room. It starts at only $1,200 a night."