NEW YORK >> Americans take out about $ 50 billion in payday loans a year, each accumulating hundreds of dollars in fees and interest. But a small, growing service that allows its users to take an advance on their wages could give the payday lending industry a run for its money.
San Francisco-based fintech company Even made headlines late last year when Walmart, the nation’s largest private employer, announced it would begin offering Even as part of the service. of its benefits program. In addition to providing tools that allow employees to track their spending and save money, Even offers Instapay, which allows users to advance part of their next paycheck up to 13 days before the day. payroll. Since the Even user draws on their already accumulated hours, Even does not charge the employee any interest on the advance.
Even is one of the few tech companies that have sprung up in recent years looking to get employee salaries faster and on demand. Companies like FlexWage Solutions and Instant Financial offer pay-on-demand, but these services are often tied to a company-issued debit card instead of an employee’s primary bank account.
Even founder Jon Schlossberg has publicly stated that part of the company’s mission is to bankrupt the payday lending industry, saying it is exploiting the financially vulnerable. He shared internal usage data exclusively with The Associated Press which shows, at least preliminary, that even users are less likely to tap into the payday loan market once they sign up for the services. of the company.
“You have this whole industry of financial institutions taking advantage of Americans struggling to live from paycheck to paycheck, and payday lenders are really the most predatory,” Schlossberg said.
Payday lenders say they are providing a needed service, with many Americans unable to find the money to cover an unforeseen financial emergency. They also say they lend to the country’s most desperate, who are often the most at risk of not repaying the loan. But critics say the rates and fees are sky-high and can trap the borrower in a cycle of debt that can last for months. The Consumer Financial Protection Bureau under the Obama administration was trying to regulate the payday lending industry nationwide, but under the Trump administration the office began the process of overturning those regulations.
Even data shows that about 28% of its users took out a payday loan in the months before they signed up for the service. Four months after signing up to Even, that number drops to less than 20%. Even calculated the figure by studying the usage behavior of its members from December 2017 to September 2018.
Even is able to tell which users are still using payday loans because Even users link their bank accounts to the app. The business is then able to tell what types of transactions a user is performing and whether they have the characteristics of a payday loan transaction or name a payday lender as the other party.
Schlossberg admits that Even might miss some payday loan transactions, especially those where a check is used instead of an automatic debit from a borrower’s account. The data is also limited by the fact that Walmart, by far its biggest customer, didn’t start using the product until December 15, 2017. Schlossberg said the company was working with university researchers on the effectiveness of the Instapay product. Even in relation to the use of payday loans, with the goal of publishing in 2019.
Walmart is the only company to publicly state that it uses Even, but a spokesperson for Even said it currently has “more than” 10 companies listed, with 400,000 active subscribers. Even Walmart employees charge a monthly fee of $ 6 to use its premium features, which include Instapay.
Consumer advocates, who have long targeted the payday lending industry, said they were happy to see alternatives to payday loans available, but urged caution in their use.
“The drop is interesting and potentially promising, but it’s too early to draw conclusions,” said Scott Astrada, director of federal advocacy at the left-wing Center for Responsible Lending.