Gusto Early Wage Access: A High Interest Loan

Payroll Advance App Charges 36% APR

Early Wage Access (EWA) app Gusto offers employees at participating companies an opportunity to get an advance on expected pay. The service allows employees to request up to 40% of their expected pay days ahead of actual payday, with the loan being repaid when the employee’s payroll check is deposited.

Here’s more from Gusto on how the service works:

With Cashout, you can request a portion of your estimated paycheck before payday. Then, your Cashout loan is automatically repaid through your regular direct deposit paycheck.

As Gusto notes, the early access to pay comes with a fairly high interest rate:

Cashouts deposited to an external bank account will incur a small fee. The fee will be $5 or 36% APR of the loan amount, whichever fee amount is lower.

Consumer advocates have warned that repeated use of early wage access products like Gusto can create a debt trap cycle that is difficult to escape. The high interest rate or fee means a borrower can end up constantly behind in terms of meeting obligations and so a cycle of borrowing (and paying fees to access earned wages) ensues.

The services “are just a kinder version of payday loans,” National Consumer Law Center (NCLC) Associate Director Lauren Saunders said.

In fact, Saunders testified before a House Financial Services Committee Task Force…