Early Payroll Apps Are Too Much Like Payday Loans
Every time I get an hour or three on demand TV, I see an Earnin ad. In one of them, a quick-witted older brother tells the man behind the camera that he needs to stop asking for money and get the Earnin app instead. “You can access your earned money without any commissions or interest,” says the quick-witted guy. “You just tip if you think it’s fair.”
But is it really that easy to get paid before your company’s payday? There has to be a gimmick – something to prove the proposal is too good to be true.
Early Payroll Application Fundamentals
There are two types of early access payroll programs. The first is those that work independently of your employer. You provide some information about your hourly work and connect your bank for a short term loan.
Earnin allows you to withdraw up to $ 100 per day, but this maximum withdrawal can change over time and range from $ 50 to $ 500. Rather than charging a fee for the convenience, Earnin encourages, but does not require, a tip for the service. It states that contributions from the entire community keep the application running.
In addition, there is a larger group of services where your employer must register in order to offer advances through a third-party application. It even allows employees to withdraw profits to their bank account or collect them anywhere at Walmart in the US. It does not advertise any hidden fees, loans or interest, and it also provides budgeting tools to help users anticipate upcoming expenses. Walmart and its sister store Sam’s Club even offer employees, allowing you to access a portion of the pre-payday payday up to eight times a year (if you want to do this more than eight times, you have to pay). This money is then deducted from your next paycheck.
PayActiv is another option: it doesn’t require a bank account for cash advances and even works with prepaid debit cards. Meanwhile, FlexWage provides early payroll access and faster access to tips and commissions with a Flex Pay debit card. The employer can choose how often you can pay wages. Daily Pay will charge $ 1.25 for each wage earned transfer to your bank account; on the day of payment, you will receive a full paycheck and all transfers will be debited from your account. ZayZoon also requires an employer to provide advances that are automatically debited on your next payday.
Some of these services call this payday advance. Some tell you that you can choose your own payday. Some say you just get faster access to the money you’ve already earned. Very few of them use the word “loan”. But that’s essentially what they are.
New payday loan?
“Just because you access it through the app doesn’t mean it’s not a loan,” said Lauren Saunders, deputy director of the National Center for Consumer Rights . She describes early payroll loans as loans that require a lump sum payment.
Saunders explained that employer-approved early payroll programs are slightly less risky because they are tied to your exact hours and pay schedule. An early payroll app that simply syncs with your regular bank account activity like Earnin can backfire. “Sometimes [these apps] make mistakes when they think you’re getting your paycheck. You may face overdraft fees or insufficient fund fees, ”she said.
Despite the ease of use of these early pay programs, they are far from reliable. “Quite often people get into a cycle of having to do this every pay period,” Saunders said. “You’ve got a hole in your paycheck, but you need that money too.”
In addition, there is the problem of advice similar to those recommended by Earnin. In 11 states, Earnin is under investigation over concerns that the company is offering hidden payday loans at matching interest rates. The New York Post reported in March that Earnin is offering a tip of $ 9 for a $ 100 advance , which equates to an interest rate of 469% for a one-week loan. In states where payday loans are legal , there is sometimes a limit on the amount of interest that lenders can charge. In New York, for example, the interest rate cannot exceed 25%. In California, lawmakers are pushing for a cap on early access pay to $ 14 a month.
But at the federal level, tipping is critical. In its 2017 update of payday lending rules , the Bureau of Consumer Financial Protection noted: “The Bureau has decided not to limit such free advances solely to the context of the employer and employee, as the very specific structure of their products makes them an exception to the rule for them likely to be beneficial to consumers across the entire spectrum. ” The next line contains a caveat: CFPB may re-check this status in the future if it sees evidence to the contrary.
Alternatives to early pay programs
While payroll early access apps seem fresh, the concept of getting your paycheck upfront is not new. I’ve heard stories of people who might ask their boss for a loan or advance, although these stories are usually told by baby boomers.
Saunders said a cash advance on a credit card can help close the paycheck gap if you know you can pay back that advance right away. Other options include looking for small loans from credit unions or checking if your bank offers overdraft lines of credit . The latter offers a relatively low interest rate on the amount you transferred.
And, of course, there are the notorious payday loans , although conventional wisdom (and everything you’ll read here on Lifehacker) is to avoid them at all costs. As with Earnin’s ad campaign, traditional moneylenders don’t seem to wind down anytime soon.
This post was updated on 8/14/2019 to fix the ZayZoon redemption period.