Buzz
Every time I sit down for a few hours of on-demand TV, I spot ads for Earnin. In one ad, a knowledgeable older-brother figure advises the viewer to stop borrowing money and instead download the Earnin app. 'You can access the money you’ve earned, without paying any fees or interest,' he says. 'Just tip what you think is fair.'
But is it truly that easy to access your paycheck before the scheduled payday? There must be something hidden—a catch to prove that this deal might be too good to be true.
The Essentials of Early Wage Apps
There are two main types of early wage access programs. The first includes those that operate independently of your employer. You enter some basic details about your hourly job and link your bank account to access a short-term loan.
Earnin allows you to withdraw up to $100 a day, though this limit can vary over time, ranging from as low as $50 to as high as $500. Instead of charging fees, Earnin encourages voluntary tipping for the service. The app states that community contributions help sustain it.
Another set of services requires your employer to register to offer advances through a third-party app. Even, for example, lets employees withdraw earnings to their bank account or pick it up at any Walmart location across the U.S. It promotes no hidden fees, no loans, and no interest, and includes budgeting tools to help users plan for upcoming expenses. Walmart and Sam’s Club offer Even to their employees, letting them access a portion of their wages before payday, up to eight times a year (with a fee for more frequent use). This money is then deducted from the next paycheck.
PayActiv is another option: it doesn’t require a bank account for cash advances and even supports prepaid debit cards. Meanwhile, FlexWage lets you access earned wages and faster access to tips and commissions via a Flex Pay debit card. Employers decide how often you can access your earnings. Daily Pay charges $1.25 for each transfer of earned wages to your bank account; on payday, you receive your full paycheck, and any transfers are deducted from it. ZayZoon also requires employer participation and provides advances, which are automatically deducted from your next payday.
Some of these services refer to it as a payday advance. Some let you pick your own payday. Others claim you're simply accessing the money you've already earned more quickly. Few, however, use the word 'loan.' But that's essentially what these services offer.
The New Payday Loan?
"Just because it's accessible through an app doesn't mean it's not a loan," said Lauren Saunders, associate director at the National Consumer Law Center. She describes early wage loans as balloon loans, which require repayment in a single lump sum.
Saunders pointed out that employer-backed early wage access programs are somewhat less risky, as they are tied to your exact work hours and pay schedule. On the other hand, an app that simply syncs with regular bank activity, like Earnin, could lead to problems. "Sometimes these apps get the timing of your paycheck wrong. You could end up with overdraft or insufficient funds fees," she explained.
Despite the convenience of early wage access programs, they're not without their flaws. "It's quite common for people to fall into the habit of relying on these apps every pay period," Saunders said. "You end up with a gap in your paycheck, but you still need that money."
Then there's the issue of tips, like those encouraged by Earnin. Earnin is under investigation in 11 states for allegedly disguising payday loans, with interest rates to match. According to the New York Post in March, Earnin suggests a tip of $9 for a $100 advance, which translates to a 469% interest rate for a one-week loan. In states where payday loans are legal, there are often limits on the interest lenders can charge. For instance, in New York, the interest rate is capped at 25%, and in California, lawmakers are pushing to limit early wage access fees to $14 per month.
At the federal level, however, tips play a crucial role. In its 2017 update to its payday lending rule, the Consumer Financial Protection Bureau noted, "The Bureau has decided not to limit such no-fee advances exclusively to the employer-employee context, as the specific characteristics of their product structure make them an exemption from the rule that is likely to benefit consumers across the board." The next line provides a caveat: the CFPB could reconsider this stance in the future if new evidence arises.
Alternatives to Early Wage Programs
Although early wage access apps feel like a modern innovation, the idea of getting an advance on your pay isn’t exactly new. I've heard tales of people asking their bosses for a pay advance or loan, though these stories tend to come from baby boomers.
Saunders suggested that a cash advance on a credit card could help cover the gap between paydays, provided you can repay it quickly. Other alternatives include seeking small loans from credit unions or checking if your bank offers overdraft lines of credit, which typically carry a low interest rate on the amount you've overdrawn.
And, of course, there are the infamous payday loans, though conventional wisdom (and everything you'll read here at Mytour) advises against them at all costs. Like Earnin’s ad campaign, traditional loan sharks don’t seem to be disappearing anytime soon.
This post was revised on 8/14/2019 to update ZayZoon’s repayment period.
