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December 19, 2019 07:34 pm

The New Payday Lender Looks a Lot Like the Old Payday Lender

Apps promising to "advance" a user's wages say they aren't payday lenders. So what are they? From a report: Earnin does not call its service a loan. Rather, it's an "advance": Users are borrowing from their own paychecks -- not from the app. It does not require a credit check, and promises no hidden fees or additional financing charges, even if users don't tip or repay. Its terms of service say it will never attempt to collect on an advance that wasn't repaid. Earnin is one of a new class of online lending apps, marketed as frictionless alternatives to traditional payday lenders. They are advertised on dating apps, YouTube, and in between episodes of a Hulu binge. Crucially, rather than charging interest or a financing fee, these apps collect their money via those "tips," as do the companies Dave and Moneylion. Unlike with, say, a food-delivery app, tips don't go toward augmenting a low-wage worker's hourly rate, but simply toward the companies themselves: Dave says tips are "what keep our lights on," and Moneylion says its tips "help us cover the high costs of keeping Instacash interest free." Earlier this year, after a probe by New York State regulators, Earnin ended its practice of increasing users' borrowing limit based on how much they tipped. It still tells users "if the Earnin community keeps [tipping], we'll be able to expand our services." There's an analog for the services these apps offer: payday lending, which more than a dozen states have effectively prohibited. Payday lenders peddle small-dollar loans, available right away, then debit the amount borrowed, plus a financing fee, on the borrower's next payday. The financing fees and interest rates associated with payday loans are enormously high, as much as $30 per every $100 borrowed, according to the Consumer Finance Protection Bureau.

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