The prepayment service can reduce the use of payday loans
NEW YORK – Americans take out about $ 50 billion annually in payday loans, each of which amass hundreds of dollars in fees and interest. But a small and growing service that allows its users to take an advance on their paycheck could give the payday loan industry a battle for their money.
San Francisco-based financial technology company Even made headlines late last year when Walmart, the country’s largest private employer, announced it would offer Evens service as part of its employee benefits package. In addition to providing tools that employees can use to track their expenses and save money, Even offers Instapay, which allows users to pull a portion of their next paycheck up to 13 days before payday. Since the Even user taps into the hours he has already collected, Even does not charge the employee any interest on the advance.
Luis Vazquez, an overnight support manager at Walmart in Dallas, poses for a photo on July 28 with the Instapay app developed by technology company Even, which helps him with his finances. In addition to providing tools that employees can use to track their expenses and save money, Even offers Instapay, which allows users to pull a portion of their next paycheck up to 13 days before payday.
Photo by Michael Ainsworth
Even is one of the few technology companies that have come onto the market in recent years to bring wages to employees more quickly and in a more needs-based manner. Companies like FlexWage Solutions and Instant Financial offer on-demand payments, but these services are often tied to a company-issued debit card rather than an employee’s primary bank account.
Even founder Jon Schlossberg has publicly said that part of the company’s mission is to put the payday lending industry out of business, claiming it is exploiting the financially weak. He’s shared internal usage data exclusively with The Associated Press, which shows, at least tentatively, that even users are less likely to enter the payday loan market when they sign up for the company’s services.
“There’s an entire industry of financial institutions taking advantage of Americans struggling to live from paycheck to paycheck, and payday lenders really are the most predatory,” said Schlossberg.
Payday lenders say they provide a necessary service because many Americans are unable to raise cash to cover an unexpected financial emergency. They also say they make loans to the most desperate in the country, who are often the greatest risk of not repaying the loan. However, critics say the interest rates and fees are exorbitant and can keep the borrower trapped in a debt cycle that can last for months. The Obama administration’s Consumer Financial Protection Bureau attempted to regulate the payday lending industry nationwide, but under the Trump administration the office has begun to reverse those regulations.
Even data shows that approximately 28 percent of its users took out a payday loan in the months prior to signing up for the service. Four months after signing up with Even, that number drops to less than 20 percent. He even calculated the number by examining the usage behavior of its members from December 2017 to September 2018.
Even can tell which users are still using payday loans as Even users link their bank accounts to the app. The company can then identify what types of transactions a user is making and whether they have the characteristics of a payday loan transaction or identify a payday lender as a counterparty.
Schlossberg admits that Even could be missing from some payday loan transactions, especially when a check is used in place of a direct debit from a borrower’s account. The data is also limited by the fact that Walmart, its largest customer by far, only started using the product on December 15, 2017. According to Schlossberg, the company is working with academic researchers on the effectiveness of Even’s Instapay product versus payday loan usage with the goal of releasing sometime in 2019.
Walmart is the only company to publicly say it uses Even, but an Even spokesperson says it currently has “more than” 10 companies with 400,000 active subscribers. Walmart employees even charge a monthly fee of US $ 6 to use the premium features, which include Instapay.
Consumer advocates, long targeting the payday loan industry, said they were happy to see alternatives to payday loans, but cautioned caution when using them.
“The decline is interesting and potentially promising, but too early to draw any conclusions,” said Scott Astrada, director of federal prosecution at the left-wing Center for Responsible Lending.