Have you used a cash advance app?
The fast-growing market for loans from cash advance apps is harming consumers, a new report from the Center for Responsible Lending shows. The report describes rates of reborrowing, loan stacking, and overdraft fees experienced by people borrowing from a cash advance app such as Earnin or Dave – or from a combination of these lenders.
“By offering predatory credit with just a few taps on your cell phone, cash advance apps are a loan shark in your pocket,” Candice Wang, senior researcher at the center, said in a statement. “This report shows many cash advance app borrowers are trapped in a cycle of debt like that experienced by payday loan borrowers.”
Cash advance app companies issue loans with triple-digit annual interest rates in nearly every corner of America – even where those rates are illegally high – inflicting financial pain on a growing number of consumers, Wang said.
Key findings of the report:
- Many cash advance app borrowers are trapped in a debt cycle and the heaviest users drive the business model. Repeat use of advances is common and high-frequency users accounted for 38 percent of users and 86 percent of advances. Many users borrowed from multiple apps simultaneously. Nearly half of all borrowers had used multiple companies in the same month.
- App use is associated with increased overdraft fees and payday loan use. For users with overdraft fees or payday loans, the majority saw the number of times they used these high-cost products increase after taking out an advance for the first time.
- Consumers across states are experiencing similar harms. The 18 states analyzed had similar patterns of repeat borrowing, overdraft use, and loan stacking.
Background
The center received financial transactions data, without names, dating from January 2021 through June 2024 from a panel of low- to moderate-income consumers affiliated with SaverLife, a nonprofit dedicated to using technology to improve financial health.
The center matched more than 214,000 advances to nearly 6,000 unique users across 20 cash advance apps: direct-to-consumer lenders Albert Instant, Brigit, Cleo, Dave, Earnin, Empower, FloatMe, Klover, MoneyLion, and Varo Advance, as well as employer-integrated lenders Branch, DailyPay, One@Work (formerly Even), PayActiv, Rain, Tapcheck, Immediate, Instant Financial, Wagestream, and ZayZoon.
Final thoughts
Be wary of cash apps for getting loans. Consumers aren’t aware of the true costs and potential harms of advances. These fintech cash advances leave many consumers worse off.
I can only wonder why (1) both pay day lenders and (2) cash advance apps are legal or that state legislatures (& the fed.gov) don’t immediately pass (sure it would be a bipartisan effort, or you’d hope so) limiting the interest on either to those offered by banks, CUs, to people w/average credit scores, i.e. limit the interest rate AND limit any other costs, like fees, late fees, etc. And then actually enforce those laws.
Or is it ok because someone’s making substantial profits and that’s what matters and individuals are expected to be smarter, wiser, and more “responsible” then corporations (and some banks) are? (see the Great Recession).
It doesn’t surprise me, unfortunately, that it’s happening, and I’m very sorry that there are enough people struggling every month to make ends meet, who cannot get the help/asisstance they need in any other way then to utilize payday lenders, these apps, et al–which are apparently quite profitable for their owners. At one time, the state of OR, reduced or limited the interest rate payday lenders could charge–and payday lender storefronts seemed to disappear or the number decreased greatly. Seems to be difficult for states & the federal gov’t to regulate anything connected w/the internet.