Home Fico score Prepayment service could reduce reliance on payday loans | Company

Prepayment service could reduce reliance on payday loans | Company


NEW YORK — Americans take out about $50 billion in payday loans a year, each racking up hundreds of dollars in fees and interest. But a small, growing service that lets its users take a payday advance could give the payday loan industry a hard time.

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’s service. as part of its benefits package. In addition to providing tools for employees to track expenses and save money, Even offers Instapay, which allows users to advance a portion of their next paycheck up to 13 days before pay day. pay. Since the Even user draws on his already accumulated hours, Even does not charge the employee interest on the advance.

Even is one of the few tech companies that have sprung up in recent years with the goal of getting salaries for employees faster and on demand. Companies like FlexWage Solutions and Instant Financial offer pay-as-you-go, 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 loan industry, claiming it exploits the financially vulnerable. He shared internal usage data exclusively with The Associated Press that shows, at least preliminary, that Even users are less likely to tap into the payday loan market once they sign up. to company services.

“You have this whole industry of financial institutions taking advantage of Americans struggling to live paycheck to paycheck, and payday lenders are really the most predatory ones,” Schlossberg said.

Payday lenders say they provide a needed service, with many Americans unable to find money to cover an unforeseen financial emergency. They also say they lend to the most desperate in the country, who are often most at risk of not repaying the loan. But critics say the rates and fees are exorbitant and can trap the borrower in a cycle of debt that can last for months. The Consumer Financial Protection Bureau under the Obama administration attempted to regulate the payday loan industry nationwide, but under the Trump administration the bureau began the process of overriding those regulations.

Data from Even shows that around 28% of its users took out a payday loan in the months before they signed up for the service. Four months after signing for Even, this figure 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 company is then able to tell what types of transactions a user is making and whether they have the characteristics of a payday loan transaction or designate 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 a direct debit from a borrower’s account. The data is also limited by the fact that Walmart, by far its largest customer, only started using the product on December 15, 2017. Schlossberg said the company was working with university researchers on the effectiveness of the Instapay product. of Even in relation to the use of payday loans, with the objective of publishing sometime in 2019.

Walmart is the only company that publicly says it uses Even, but an Even spokesperson says it currently has “more than” 10 companies signed up, 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 loan industry, said they were happy to see alternatives to payday loans available, but urged caution about their use. — (AP)

“The decline is interesting and potentially promising, but too early to draw conclusions,” said Scott Astrada, director of federal advocacy at the left-leaning Center for Responsible Lending. —