Pay-advance apps are marketed as a way to help workers living paycheck to paycheck pay for unexpected expenses, but workers are often using the apps to manage basic expenses like groceries, rent and other needs, a new report found.
The tools, consumer advocates say, can carry costs akin to those of traditional payday loans.
An analysis of anonymous data found worrisome behavior among users of the apps, including quick increases in the number of advances, advances from multiple apps at the same time and more frequent bank overdraft fees.
“These findings reveal persistent patterns of financial strain that raise serious concerns about the long-term effects of these loans,” said the report from the Center for Responsible Lending, a nonprofit consumer advocacy group. The group analyzed data from SaverLife, a nonprofit that promotes saving and sound financial practices among people with low or moderate incomes.
The analysis found that heavy users of the apps paid $421, on average, in total loan and overdraft fees over a year, or almost triple the average paid by moderate users.
What are pay-advance apps?
The apps, also known as “earned wage access” or “on-demand pay” tools, aim to address the gap between when hourly workers earn their wages and when they are paid. A typical pay cycle is biweekly or monthly, but expenses can crop up before a paycheck arrives. Workers can use the apps to request a portion of their wages early. The amount is then deducted on the user’s payday.
Pay-advance apps come in two varieties, which work a bit differently. Apps available to the public — like Brigit, Dave and EarnIn — typically link to the user’s bank account. Options offered through employers work with a company’s payroll system.
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The post Some Workers Are Turning to Pay-Advance Apps for Basic Expenses appeared first on New York Times.
