NEW YORK (AP) — When Anna Branch, 37, had her hours at work reduced at the start of the pandemic in 2020, she suddenly noticed ads for an app called EarnIn.
“You know how they get you — the algorithms — like they’re reading your mind,” Branch said. “The ad said I could get up to $100 this week and repay it in my next pay period.”
Branch, who was working as an administrative assistant in Charleston, South Carolina, downloaded the app, agreed to the flat fee, and added the suggested “tip.” The cash helped her cover expenses until payday, when the app debited the borrowed $100, plus $18 for the fee and tip. Four years later, Branch said she still uses the app, as often as once a month.
EarnIn is one of more than a dozen companies that provide this service, billed as Earned Wage Access. The apps extend small short-term loans to workers in between paychecks so they can pay bills and meet everyday needs. On payday, the user repays the money out of their wages. Between 2018 and 2020, transaction volume tripled from $3.2 billion to $9.5 billion, according to Datos Insights.
While Earned Wage Access apps have been around for over a decade, the pandemic and its aftermath boosted their popularity. Some apps have approachable human names — like Dave, Clio, Albert, and Brigit — while others suggest financial freedom: Empower, FloatMe, FlexWage, Rain. The typical user earns less than $50,000 a year, according to the Government Accountability Office, and has experienced the pinch of two years of high inflation.
Proponents of the apps say they help people living paycheck to paycheck manage their finances and avoid the need for more onerous options, such as payday loans or overdrawing a bank account. But some analysts, consumer advocates and lawmakers say the apps are actually payday loans in a new tech wrapper, and that they can trap users in an endless cycle of borrowing that depletes their earnings.
Critics also say the costs of the loans are not always transparent. Many charge monthly subscription fees and most charge mandatory fees for instant transfers of funds, though there is typically a no-cost option to receive funds in one to three business days. The average APR for a loan repaid in seven to 14 days was 367%, a rate comparable to payday lending, according to a report from the Center for Responsible Lending.
Muddying the waters is the fact that some employers have integrated Earned Wage Access apps into their payroll, with different costs, models, and fee structures. Amazon and Walmart, for example, do not always charge employees for early access to earned wages outside of regular pay periods.
“THEY GET YOU HOOKED”
Sheri Wilkins, 60, who works as a home health aide in College Station, Texas, said she’s used the apps since 2020, and that she feels “dependent on the money.”
The healthcare contractor that employs Wilkins offers DailyPay, and Wilkins typically uses the app to transfer the amount of that day's wages ($10.60 an hour) twice a day — once after each of her two shifts, for which she's paid separately. Each time, she pays a $3.49 fee, for a total of $7 a day. At $35 a week, the app eats up more than three hours of her pay weekly, or a-day-and-a-half’s work per month.
“They get you hooked on having that money,” Wilkins said. “It’s fine and great to have it — to buy groceries and cigarettes — but when it comes time to have your paycheck, it’s only $50-$60.”
Wilkins said she was not aware the app had a free option, which would transfer the money in one to three days. She said the app always directed her to the instant transfer option.