The advance payment service can reduce the use of payday loans
The advance payment service can reduce the use of payday loans
Americans take out approximately $ 50 billion in payday loans per year, each accumulating hundreds of dollars in fees and interest. However, a small and growing service that allows its users to take an advance payment on their paycheck could be giving the payday loan industry a run for their money.
Even the San Francisco-based financial technology company made headlines late last year when Walmart, the nation's largest private employer, announced that it would begin offering the Even service as part of its employee benefits package. In addition to providing tools that allow employees to track their expenses and save money, Even introduces Instapay, which allows users to advance part of their next paycheck up to 13 days before payday. Because the user Even is taking advantage of his accumulated hours, Even does not charge the employee's interest for the advance.
It is even one of the few technology companies that have appeared in recent years seeking to obtain salaries for employees faster and on demand. Payments on demand, such as FlexWage Solutions and Instant Financial, are often linked to a debit card issued by the company instead of the main bank account of an employee.
Even founder Jon Schlossberg has publicly said that part of the company's mission is to take the payday loan industry out of service, claiming that it exploits financially vulnerable people. He shared the data for internal use exclusively with The Associated Press, which shows, at least preliminarily, that even users are less likely to access the payday loan market once they sign up for the company's services.
"There's this whole industry of financial institutions that take advantage of Americans struggling to pay for paychecks, and payday lenders are really the most predatory," Schlossberg said.
Payday lenders say they provide a necessary service and that many Americans can not get cash to cover an unexpected financial emergency. They also say they lend to the most desperate in the country, who often have the greatest risk of not paying the loan. But critics say that rates and fees are exorbitant and can trap the borrower in a debt cycle that can last for months. The Office of Consumer Financial Protection, under the Obama administration, was trying to regulate the payday loan industry throughout the country, but under the Trump administration, the office began the process of reversing those regulations.
Even data shows that approximately 28 percent of its users took out a payday loan in the months before subscribing to the service. Four months after enrolling in Even, that number drops to less than 20 percent. He even calculated the figure by studying the usage behavior of its members from December 2017 until September 2018.
It is even able to tell which users are still using payday loans because even users link their bank accounts to the application. The company can then know what type of transactions a user is making and whether they have the characteristics of a payday loan transaction or appoint a payday lender as the other party.
Schlossberg admits that some payday loan transactions might be missing, particularly those in which a check is used instead of a direct debit from the borrower's account. The data is also limited by the fact that Walmart, by far the largest customer, only started using the product on December 15, 2017. Schlossberg said the company is working with academic researchers on the effectiveness of the Instapay product from Even against the use of the payday loan, with the aim of publishing at some point in 2019.
Walmart is the only company that publicly says it uses Even, but an Even spokesperson says it has "more than" 10 companies currently registered, with 400,000 active subscribers. It even charges Walmart employees a monthly fee of $ 6 to use its premium features, which include Instapay.
Consumer advocates, who have long hinted at the payday loan industry, said they were happy to see alternatives to available payday loans, but asked for caution about their use.
"The decline is interesting and potentially promising, but it's too early to draw conclusions," said Scott Astrada, director of federal defense at the Center for Responsible Lending on the left.
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