More workers can now use pay advance apps for quick cash to cover expenses between paychecks. The apps may offer no-cost options, but most users end up paying fees that can total hundreds of dollars a year, a new analysis finds.
"They are not free in the vast majority of cases," said Candice Wang, a senior researcher at the Center for Responsible Lending, a nonprofit consumer advocacy group, and a co-author of a report published on Friday on the real cost of pay advance apps. Pay advance apps, also known as "earned wage access" or "on-demand pay" tools, let workers get part of their earnings early to tide them over until their full paycheck arrives. Most borrowers earn less than $50,000 a year, a 2023 government report found.
The report estimated that nationally, 96 percent of advances to workers using direct-to-consumer versions of the apps included fees or "tips," costing borrowers more than $200 a year, or about $17 a month, on average. The average cost of an advance via a direct-to-consumer app was about $6.50 to borrow $113 for nine days, calculating to an annual percentage rate of about 232 percent.
Researchers found that in all 50 states and the District of Columbia, average advance rates were in the triple digits — even in states with lower interest rate caps. "We want to see states enforcing their rate caps," said Whitney Barkley-Denney, the responsible lending center's deputy director of state policy.
Source: New York Times Business · Summarized by HeadlinesBriefing