Regulators Take a Closer Look at Payroll Advance Applications

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Regulators are taking a closer look at financial apps that allow workers to access their wages earlier.

The apps claim they are more affordable – and safer – alternatives for Americans who live paycheck to paycheck, according to The Wall Street Journal. But regulators in New York and 10 other states are not convinced. Last month, they began investigating whether any of these companies had broken payday lending laws, sending letters to payroll advance applications, including To win, PayActiv and Even responsible finance.

“This investigation will help determine whether these payday advance practices are usurious and harm consumers,” said Linda Lacewell, chief financial regulator of New York, adding that some companies “appear to be charging usurious or illegal interest rates. disguised as tips, monthly subscriptions “. and other costs.

While industry executives and consumer advocates admit that apps can potentially help low- and moderate-income workers, there is a debate about how they should operate and be regulated.

“It did not solve the problem of income inequality,” said Todd Baker, senior researcher at Columbia Business School. “What it does is replace, at minimal cost, the $ 30, $ 40 that people are paying today for a single overdraft or a $ 200 payday loan.”

According to data from the Financial Health Network, consumers spent $ 173 billion in fees and interest in 2016 on services, including $ 24.5 billion in bank overdraft fees and $ 6 billion in payday loans.

But Ram Palaniappan, managing director of Earnin, argued that the apps can help cash-strapped American workers.

“In the United States, we have this pay cycle that withholds people’s pay,” he said. “What we have been able to do is give people access to their salary as they earn it.”

As for the assignment of regulators, Palaniappan explained “this is a new model. We welcome their questions.

Jon Schlossberg, Managing Director of Even, added: “We welcome the attention of regulators on this issue as I believe it will prevent the industry from regressing to the same average as payday lenders. “

PayActiv chief executive Safwan Shah said he looked forward to the investigations bringing clarity to the market.

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NEW PYMNTS DATA: TODAY’S SELF-SERVICE PURCHASE JOURNEY – SEPTEMBER 2021

On: Eighty percent of consumers want to use non-traditional payment options like self-service, but only 35 percent were able to use them for their most recent purchases. Today’s Self-Service Shopping Journey, a PYMNTS and Toshiba Collaboration, analyzes more than 2,500 responses to find out how merchants can address availability and perception issues to meet demand for self-service kiosks.

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