The End of Payday Loans or a Kinder, Gentler Predator?
Adam Hardy writes in Money.com that a number of cash-advance apps are suggesting they offer a viable alternative to payday loans but may instead offer a similar product in a more tech-friendly package.
Hardy reviews the policies and practices of apps such as Dave, Earnin, and Brigit and finds that:
“. . .consumer experts warn their fees are just as bad as — if not worse than — traditional payday loan APRs, with rates that can easily top 300%. And, they say, the apps can actually trigger overdraft fees.”
The high fees and APRs come as the backers of the apps suggest:
However, these apps lack the consumer protections of other credit products.
But regulatory guidance on newer fintech companies that offer cash advances and similar products has been somewhat mixed. As it stands, consumers currently don’t receive the same federal protections for a cash advance from a company like Earnin as they would for a cash advance or loan from a more traditional lender — from, say, a credit card company like Chase or even a payday lender like Amscot.
The piece on the high costs and fees of these apps comes as the Consumer Financial Protection Bureau (CFPB) has opened an inquiry into the practices of BigTech payment systems.
The move to examine new products in the Fintech space has been welcomed by consumer groups such as Consumer Federation of America.
“We appreciate the CFPB’s careful examination of these largely unchecked BigTech Giants and hope that this inquiry signals to others operating outside of the regulatory system that they will be held accountable for any consumer harm,” said Rachel Gittleman, Financial Services Outreach Manager for Consumer Federation of America.
However, it is not clear the CFPB inquiry will include the relatively new startups such as Dave, Earnin, Brigit, and others.
The Center for Responsible Lending (CRL), the NCLC and 94 other consumer, faith and labor organizations wrote a letter to the CFPB in October, asking the agency to rescind its opinions and regulate fintech payday products as credit.