These apps allow workers to get paid between paychecks. Experts say there are steep costs
NEW YORK — When Anna Branch, 37, saw her hours at work reduced at the start of the pandemic in 2020, she suddenly saw ads for an app called EarnIn.
“You know how they make you – the algorithms – like they’re reading your mind,” Branch said. “The ad said I could get up to $100 this week and pay it back in my next pay period.”
Branch, who worked as an administrative assistant in Charleston, South Carolina, downloaded the app, agreed to the flat fee and added the suggested “tip.” The money helped her cover costs until payday, when the app debited the $100 she borrowed, plus $18 for the fee and tip. Four years later, Branch said she still uses the app, as often as once a month.
EarnIn is one of more than a dozen companies offering this service, billed as Earned Wage Access. The apps provide small, short-term loans to workers between paychecks so they can pay bills and meet daily needs. On payday, the user pays back the money from his salary. According to Datos Insights, transaction volume tripled from $3.2 billion to $9.5 billion between 2018 and 2020.
Although Earned Wage Access apps have been around for more than a decade, the pandemic and its aftermath have increased their popularity. Some apps have accessible human names – like Dave, Clio, Albert and Brigit – while others suggest financial freedom: Empower, FloatMe, FlexWage, Rain. The average user earns less than $50,000 a year, according to the Government Accountability Office, and has felt the pressure of two years of high inflation.
Proponents of the apps say they help people living paycheck to paycheck manage their finances and avoid the need for more onerous options, such as payday loans or overdrafting a bank account. But some analysts, consumer advocates and lawmakers say the apps are essentially payday loans in a new tech package, and that they could trap users in an endless cycle of borrowing that drains their income.
Critics also say that the costs of the loans are not always transparent. Many charge monthly subscription fees and most charge mandatory fees for instant money transfers, although there is usually a fee-free option to receive funds within one to three business days. The average APR for a loan repaid in seven to 14 days was 367%, a rate comparable to payday loans, according to a report from the Center for Responsible Lending.
Complicating matters is the fact that some employers have integrated Earned Wage Access apps into their payroll systems, with different costs, models and reimbursement structures. For example, Amazon and Walmart don’t always charge workers for early access to earned wages outside of regular pay periods.
Sheri Wilkins, 60, who works as a home health aide in College Station, Texas, said she has been using the apps since 2020 and feels “dependent on the money.”
The healthcare provider that employs Wilkins offers DailyPay, and Wilkins typically uses the app to transfer the amount of her daily wage ($10.60 per hour) twice a day – once after each of her two shifts, for which she is paid separately. Each time she pays a fee of $3.49, for a total of $7 per day. For $35 a week, the app eats up more than three hours of her pay per week, or a day and a half of work per month.
“They get you addicted to having that money,” Wilkins said. “It’s fine and great to have it — to buy groceries and cigarettes — but when it comes time to get your paycheck, it’s only $50-$60.”
Wilkins said she wasn’t aware the app had a free option, which would transfer the money within one to three days. She said the app always sent her to the direct transfer option.
A spokesperson for DailyPay said in a statement that the app offers two options with no fees for most users and a third with what they describe as a “small ATM-style fee.”
Matt Bahl, who researches workplace issues for the Financial Health Network, said the growth of the Earned Wage Access industry is a symptom of widespread financial insecurity.
“It is intended to solve short-term liquidity problems,” he said. “But if those challenges are the result of insufficient revenue, they won’t solve them. You cannot ‘technify’ your way out of material shortages.”
Andrew Lewis, 32, who lives in Bucks County, Pennsylvania, said he uses EarnIn in part to cover unexpected expenses. Lewis works as a process engineer for an electronics manufacturing company and says he sometimes uses the app on a weekly basis, for gas money or something his toddler or wife needs.
Lewis usually pays the “tips” the apps suggest, he said, but he doesn’t like them much, partly because of the messages.
“Tips allow us to reach millions of members like you,” reads EarnIn’s in-app copy. The company says it uses tips to maintain a no-fee option.
“I feel a little guilty because of the way they make it sound,” Lewis said.
In 2021, the California Department of Financial Protection and Innovation found that “users often feel pressured to leave (tipping) due to pressure tactics employed such as…claiming that tips are used to support other vulnerable consumers or for charitable purposes.”
In its report, the department found that borrowers using Earned Wage Access take out an average of 36 loans per year. Across 5.8 million transactions, 73% of consumers paid a “tip,” an average of $4.09 per tip. On three dozen loans, that’s $147 a year in tips alone.
Penny Lee, head of the Financial Technology Association, an industry group, says more people are turning to Earned Wage Access as a convenience to help offset the “disconnect between what consumers need to spend… and their paychecks.” bicycle.”
Like Buy Now, Pay Later loans, the apps don’t run credit checks and bill themselves as interest-free. Unlike payday loans or car loans, where borrowers pledge their vehicles as collateral, users of the apps don’t face balloon payments, black marks on their credit reports or the possibility of losing their car if they don’t pay. Proponents also say the apps don’t file lawsuits or send collection agencies after unpaid debts.
The FTA says the average cost per use of an Earned Wage Access app is between $2.59 and $6.27. The companies say the fees are comparable to ATM fees and cheaper than overdraft fees, which people incur when they don’t have enough money in a checking account to pay a bill before payday. The average overdraft fee is over $25 and can go as high as $36.
However, in its report, the Center for Responsible Lending found that users of the apps experienced a 56% increase in overdrafts on checking accounts.
A number of states have taken steps to enact the Earned Wage Access to the Truth in Lending Act, which limits fees and interest on short-term loans and covers payday loans. The industry is backing a federal bill, currently before Congress, that would exclude the apps from being regulated by the Truth in Lending Act.
When Connecticut passed a law limiting the fees apps could charge, EarnIn ceased operations in the state. When asked why, EarnIn CEO Ram Palaniappan said it was no longer “economically viable.”
Both California and Hawaii are currently drafting laws to rein in Earned Wage Access fees.
Rep. Bryan Steil, R-WI, one of the backers of the federal bill, said it “will ensure that workers across the country can continue to access these services, allowing them to better link work to pay.”
But Hawaii state Sen. Chris Lee, a Democrat who introduced regulations in the Senate aimed at access to earned wages, called the interest rates above 300 percent a “modern lending scheme.” Lee said he would like to see more transparency and worker protections.
Lauren Saunders, an attorney at the National Consumer Law Center, says this is a crucial time for regulation.
“If (Earned Wage Access) were used by people to cover one emergency expense per year, it could be better than being subject to overdrafts or payday or car loans,” she said. “But being better than horrible predatory products should not be the norm.”
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