Pay ad­vance apps are life­lines that may ul­ti­mately be costly

Daily Southtown - - Business - By Tara Siegel Bernard

Amer­i­cans have be­come ac­cus­tomed to sum­mon­ing just about anything on de­mand, from gro­ceries to­car rides. Now it’s just as easy to get paid when youwant.

As the coro­n­avirus pan­demic squeezes house­hold bud­gets, work­ers and em­ploy­ers alike are in­creas­ingly turn­ing to pay-ad­vance apps with friendlyso­und­ing names like Earnin, Dave, Brigit and Rain. They al­low users, for a some­times-op­tional fee, to re­quest money be­fore pay­day. One even briefly of­fered a pro­gram for those wait­ing for slow-to-ar­rive job­less ben­e­fits.

“I turned to those pay-ad­vance apps to com­pen­sate where I couldn’t,” said Tasha Ayala- Spain, an Amer­i­can Air­lines em­ployee from Up­per Darby, Penn­syl­va­nia, whose hours were slashed this year. She has used Dave and Earnin to get ad­vances of up to $200 per pay pe­riod.

For a few dol­lars or less, users can cover a bill that comes due in the mid­dle of a pay cy­cle or get cash for an un­ex­pected ex­pense. By tap­ping their earned but un­paid in­come early, they can avoid over­draft fees, late charges or worse — more preda­tory lenders. And come pay­day, the ad­vance is re­paid from their bank ac­count or di­rectly from their pay­check.

But th­ese services, which mil­lions have down­loaded, come with ques­tion marks. Some cus­tomers have sued, reg­u­la­tors across the coun­try are look­ing into their prac­tices, and con­sumer ad­vo­cates fear that the apps are glossy pack­ag­ing for lend­ing that can leave users stuck in an ex­pen­sive cy­cle of debt.

“It’s pos­si­ble it’s help­ing them cover their bills and avoid over­draft and higher cost loans,” said Alex Horowitz, a se­nior of­fi­cer for the Pew Char­i­ta­ble Trusts’ con­sumer fi­nance project. “It’s also pos­si­ble it’s leav­ing them with­out enough money on pay­day so they turn to them again.”

Apps like Earnin and Dave, are open to thep­ub­lic and can re­quire ac­cess to your trans­ac­tion his­tory or work time sheets. Earnin may even use your phone’s GPS to check work attendance. Oth­ers, like PayAc­tiv, Dai­lyPay and Rain, are of­fered through em­ploy­ers as a work­place ben­e­fit.

Last year, work­ers tapped their pay­checks through work­place providers an es­ti­mated 37 mil­lion times, gain­ing ac­cess to more than $6 bil­lion, or nearly dou­ble the amount in 2018, ac­cord­ing to Aite Group, a re­search com­pany. And Dai­lyPay said the num­ber of users who tapped money for coro­n­avirus-re­lated rea­sons had in­creased 400% during the early months of the pan­demic.

“Maybe the user’s in­come hasn’t been af­fected by COVID, but some­one else in their house­hold has had their hours re­duced or has been laid off, re­sult­ing in less over­all in­come,” said Les­lie Par­rish, a se­nior an­a­lyst with Aite.

In re­cent months, hundreds of com­pa­nies — in­clud­ing Kroger, Way­fair, Dol­lar Tree, Staffmark and HCA Health­care — have be­gun of­fer­ing the apps to em­ploy­ees.

Big- money in­vestors have been ea­ger to cash in on the growth of an in­dus­try that caters largely to the fi­nan­cially vul­ner­a­ble. Al­ter­na­tive lenders — a class of busi­nesses that also in­clude point-of-sale and small-busi­ness lenders — drew $2.5 bil­lion in eq­uity fund­ing during the first half of 2020, ac­cord­ing to CB In­sights.

“This is ven­ture cap­i­tal money that is ex­pected to be paid back roy­ally,” said Lau­ren Saun­ders, as­so­ciate di­rec­tor of the Na­tional Con­sumer Law Cen­ter. Al­though cheaper than pay­day lenders, cash-ad­vance apps can be costly if used fre­quently, she said: A$100 ad­vance taken out five days be­fore pay­day with a $5 fee is equiv­a­lent to an an­nual per­cent­age rate of 365%.

Some services have in­stalled safe­guards, in­clud­ing lim­its on the amount that can be ad­vanced and ceil­ings on fees. Oth­ers let em­ploy­ers set the rules for their work­ers.

The sim­i­lar­ity to tra­di­tional pay­day lend­ing has prompted reg­u­la­tory scru­tiny. The New York De­part­ment of Fi­nan­cial Services and of­fi­cials in 10 other states, along with Puerto Rico, are in­ves­ti­gat­ing the fledg­ling in­dus­try.

KRISTON JAE BETHEL/THE NEW YORK TIMES

Air­line worker Tasha Ayala-Spain has used apps like Earnin and Dave to get ad­vances of up to $200 each pay pe­riod.

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