Apps give workers instant access to wages, but at what cost?

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Employers who sign up for these services like them because they don’t affect their payroll operations – the funds requested come from so-called payroll companies – and can set them apart in a tight labor market. They can be linked to workers’ schedules and show how much each shift is paying, which can prompt them to request more hours to quickly cover an upcoming expense. Some even calculate how much a person needs to cover each month’s bills.

But critics say these payday advances are nothing more than high-tech payday loans that prey on low-income workers. People who use these platforms usually pay a subscription rate or a fee for each transaction, usually a few dollars; a service is technically free but encourages users to add a tip. If the fees are calculated as an annual percentage, they can be as high or higher than traditional payday loans, which typically charge around 400%, a fee of $ 15 per $ 100, for a two-week loan, according to the Consumer. Financial Protection Bureau. .

New York regulators are conducting a multi-state investigation into potential violations of interest rate and payday loan laws in the booming industry, and California lawmakers are considering creating regulations.

The Massachusetts attorney general is not involved in the New York-led investigation but is monitoring the industry. Walmart allows employees to access wages early, but prevents those in Massachusetts from doing so because strict state payroll deduction laws do not specifically mention the practice.

What is not in dispute is the growing need for workers to empty their bank accounts before the next payday arrives.

Kelly Black, general manager of a Burger King in Epping, New Hampshire, is among three in 10 American adults without emergency savings, according to a 2019 survey from Bankrate.com. As the cost of living continues to rise as wages continue to stagnate, only 18% could live off their savings for six months – the lowest share in the nine years the consumer financial services company has leads the investigation.

So, two or three times a week, Black, 43, uses the DailyPay app to instantly ask between $ 10 and $ 100 to pay for gasoline, cigarettes, groceries or bills, at $ 2.99 a pop. On payday, her salary reflects the amount she withdrew.

In his previous jobs, Black sometimes took out high interest payday loans to avoid disconnection notices or late fees on bills. But then she would have to repay that loan with her next paycheck, forcing her to take out another loan to cover her expenses. Etc. “They are impossible to get out,” she said.

At the 101 New England Burger Kings operated by Northeast Foods, revenue has fallen 30% since the company started offering DailyPay a year ago to 1,200 employees, the vice president said. Zohaib Dhanani. The incomes of those who use the service are 15% higher than those who don’t because they can easily see how much work they need to pay a bill.

“DailyPay users are more motivated to come to work and take more shifts,” he said.

Simply paying workers more frequently, instead of every two weeks, is impractical due to the stress it places on the payroll department, Dhanani said.

DailyPay’s roughly 500,000 active users have the ability to access all of their net income sooner if their employer allows it, which most do, said Jeanniey Mullen, director of innovation and marketing at DailyPay. A woman used it to get her car out of a tow after passing her parking meter while visiting her sister’s new baby. Another tapped into his next paycheck while on a date and realized he was about to run out of gas.

Workers might abuse their ability to get paid earlier, Mullen admitted, by buying things they can’t afford, but just having access to a salary doesn’t make people less responsible.

“You don’t go to the ATM and take out all your money just because it’s all there,” she said.

What would really help low-wage workers is get a living wage, said Gillian Mason, co-executive director of the nonprofit workers’ advocacy association Massachusetts Jobs With Justice, without creating a worker cycle. “Borrowing from their future”.

“Ultimately, this is just another way to monetize poverty,” Mason said. “It gives the illusion that employers are doing something about this problem.”

Earnin, an independent employer app, has been downloaded about 10 million times, according to the company. People have to provide proof of employment, and Earnin calculates their daily pay through electronic timesheets or by tracking the time they spend at work via GPS. Users are allowed to get $ 100 to $ 500 per pay period – provided they’ve earned that much – which is deducted from their bank account on payday.

The service saved Massachusetts residents $ 2 million in overdraft fees in December alone, based on previous spending habits, spokesman RJ Bardsley said, and increased the median number of hours its users worked two hours per pay period – in part by providing money to get to work. at the end of the cycle. Users are not charged anything but can tip if they wish. The average tip is “less than typical ATM fees,” and some users tip extra to cover others, providing enough income to keep the business going.

Still, the app allows users to donate up to $ 14 for a weekly advance of $ 100, according to reports, an annual percentage of 730%, according to the North Carolina Center for Responsible Lending.

The number of new paid service providers in the fintech industry “trying to wrap themselves in this mantle of fintech innovation” is increasing day by day, said Lauren Saunders, associate director of the National Consumer Law Center in Boston. Businesses say they’re just giving people access to what they’ve earned, but these are clearly loans, she said, and not necessarily good ones.

“At the end of the day, most of these advances just fill the gap in your paycheck created by the previous loan,” she said.

At Walmart, about 450,000 of the company’s 1.4 million U.S. employees use a service called Even every month, resulting in more than 8 million requests for more than $ 1.5 billion in anticipated wages since December. 2017. Up to half of their take-home pay can be accessed early in each two-week cycle, and Walmart covers a $ 2 monthly fee of $ 8 for each employee.

In addition to payday advances, Even’s machine learning algorithms can analyze users’ bank accounts to identify expenses and how much they need to set aside to pay their bills. The app can also create individual savings plans for users based on where they live and what their costs are.

Even chief executive Jon Schlossberg, who grew up in Canton, said he would prefer not to offer advance wages at all, noting that this is the company’s biggest expense. But he knows that some of Even’s 500,000 active users might otherwise turn to payday loans or rack up late fees.

“The biggest problem most people have is, ‘I don’t have enough money in my bank account,’” Schlossberg said. “The economy has strangled people for 40 years and made it very difficult to save.”

Gini Hamilton, 54, worked at Walmart in Sheridan, Ark., On and off for seven years before resigning last summer. One of his jobs was at the service desk, where a constant stream of employees came to claim cash advances through the Even app, sometimes just days after they were paid.

“They were already broke,” Hamilton said. “They would just have $ 40 or $ 50 available, and they would take it.”

Hamilton, who is part of the retail workers’ advocacy group United for Respect, used Even to cover car repairs, a vet appointment, prescriptions and a higher than expected utility bill. . She once used it to buy clothes for her mother-in-law to be buried.

Sometimes, like her colleagues, when payday came every other Thursday, she didn’t have enough to cover the expenses for the following week. “You would wait a few days and rack up more hours,” she said, “and then use it again.”


Katie Johnston can be reached at [email protected] Follow her on Twitter @ktkjohnston.

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