Reminder: Every Payday Loan App Is Sleazy

You like having money, right? The four in 10 Americans who have no emergency savings would sure like some, as would the difficult to pin down but undeniably gigantic number who live paycheck to paycheck. The payday loan industry has long exploited this market by promising a quick fix while actually just contributing to bankruptcy rates, but the tech world is fighting their sleazy approach by, uh, offering the same basic service. But in app form!

Their creators insist on calling them "early wage apps," and you may recall the scorched Earth advertising strategy the industry leader, Earnin, employed last year. In theory, they're as innocent as the many websites that call them great ways to pick up easy cash claim. If you need, say, $100 right now, you can get it a week before your next payday, and then when that day arrives the app automatically withdraws $100 from your bank account. It's all the benefits of a payday loan without the life-destroying usury. You can read more in "9 Apps That Loan You Money Now," "The True Cost Of Payday Loans -- And Some Borrowing Alternatives," and other fun reminders that America's safety net was stolen from a 1930s circus that left a carny corpse at every stop.

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Articles like those tend to thank "innovative technology" for "disrupting" the payday loan industry, because are you even a tech company if you're not disrupting something? And with a name like Earnin, they have to be pro-consumer, right? Only someone on your side would be cool enough to drop the "g." But Earnin needs a source of income, so they humbly ask you to add a tip to your transactions -- and not so humbly cap the amount you can borrow if you don't tip. A $9 tip on a $100 advance doesn't sound like much, but at 469% APR that's actually worse than the payday loan average of a mere 391%.

So while it's possible to use an app like Earnin responsibly, it's also possible to get trapped in it. One user found himself stuck borrowing about $400 in advance of every paycheck, with $36 in tips to maintain access to that amount. And, because the app requires constant access to your time sheets, physical location, and bank balance, it can threaten to lower your borrowing limit if it looks like you're not working enough to repay a larger amount. Finally, an app capable of directly judging your cashflow with a methodology the Stasi would have envied!

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Earnin also has no qualms about overdrafting your bank account, and those fees aren't fun. But despite having a hand so deep in your pocket they can tell when you're aroused, Earnin has waived its legal right to pursue people who owe them money with the T-1000esque zeal of payday loan companies. Technically, they're offering "nonrecourse liquidity products." Why? Because then they're not subject to laws that would force them to disclose or limit their interest rates. Whether it's borderline requisite tips or the supposedly modest subscription fees of similar services, the exact cost of using a loan app can be tricky for experts to figure out, let alone some 22-year-old who needs to get their rent paid.

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Yeah, these apps target young adults in particular, who may either lack the financial experience to spot their tricks or will just be too desperate to care. They also mine just, like, all the data, allowing third parties to offer users, say, a coupon for a local restaurant. You might as well treat yourself to a night out now that you've got an easy source of money, right?

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Much like when Uber disrupted transportation by inventing the bus or Reefill came up with the innovative idea of charging a monthly subscription fee for water, Earnin and its ilk like to talk about how they're filling in holes while actually just making them more convenient to fall into. No, we're not expecting Earnin to solve economic inequality, but at least when Johnny Four Fingers lends you mob money there are no illusions about what will happen if you fail to pay up. Earnin says they want to help the people who are worst off, but those are the same people telling reporters that Earnin is trapping them in debt. Again, some people can use it responsibly, but to claim you're changing society by taking on a "broken system" with your ground-breaking app that more efficiently takes money from poor people is like saying that you're fighting cancer by making the drugs cherry flavored.

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Earnin's reaction to the COVID-19 pandemic is telling -- vague talk about the importance of community and self-congratulatory pats on the back alongside reminders of how easy it is to work from home. Nothing says relatable human beings like a blog post offering "Quarantertainment" suggestions that ends in a legal disclaimer that "maybe try a game night?" shouldn't be "construed as advice regarding any specific circumstances." At least it's better than when they implicitly compared their fight for financial equality with MLK's. Damn, we expected better from a finance app funded by Nas after he paid back his $6.4 million tax lien.

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If you're really desperate there are better options out there, although we just maxed out our credit cards on quarantine Lego so we're far from your best source of financial advice. But even if your response to all of this has been to say "Well, I would never use one of these apps," you may find them shoved in your face regardless: employers like Walmart are increasingly using similar apps, like DailyPay and PayActiv, that let their workers access their pay early. This way, charging employees a fee to access their money, and possibly trapping them in a need for early money in the process, can be spun as "making the economic lives of our workers more stable." It's all the good PR of helping employees without actually, you know, helping them.

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The Loan Remora industry is growing more popular even as it gears up for regulatory battles. Sites with names like Entrepreneur, Magnify Money, and Cash Boner will continue to endorse them as quick fixes even as Google cracks down on the apps with the most exploitative fees. So when the economy starts to recover we wouldn't be surprised to see another advertising blitz, and hey, sometimes when bills are looming you've got to do what you've got to do. But spending money you don't have yet, and paying for the ability to do it, will just trap you further in debt no matter how many buzzwords are spat at you during the process.

Mark is on Twitter and wrote a book.


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