Advance pay service may reduce use of payday loans

NEW YORK (AP) — Americans take out roughly USD50 billion in payday loans a year, each racking up hundreds of dollars in fees and interest. But a small and growing service that allows its users to take an advance on their paycheque might be giving the payday loan industry a run for its money.

San Francisco-based financial technology company Even made headlines late last year when Walmart, the nation’s largest private employer, announced it would start offering Even’s service as part of its employee benefits package.

Along with providing tools that allow employees to track their spending and save money, Even features Instapay, which allows users to advance some of their next paycheque up to 13 days before payday. Because the Even user is tapping into his or her already accumulated hours, Even doesn’t charge the employee interest on the advance.

Even is one of a handful of technology companies that popped up in recent years looking to get wages to employees faster and on demand. Companies like FlexWage Solutions and Instant Financial offer on-demand pay, but those services are often tied to a debit card issued by the company instead of an employee’s primary bank account.

Even founder Jon Schlossberg has said publicly that part of the company’s mission is to put the payday loan industry out of business, claiming it exploits the financially vulnerable. He shared internal usage data exclusively with The Associated Press that shows that Even users are less likely to tap the payday loan market once they sign up for the company’s services.

“You have this entire industry of financial institutions taking advantage of Americans struggling to live paycheque to paycheque, and payday lenders are really the most predatory,” Schlossberg said.

Payday lenders say they provide a necessary service, with many Americans unable to come up with cash to cover an unexpected financial emergency. They also say they lend to the country’s most desperate, who are often the highest risk for not paying back the loan. But critics say the rates and fees are exorbitant and can trap the borrower in a cycle of debt that can last months.