A workplace benefit is growing in popularity: earned-wage access apps that give workers some of their earnings before payday.
The apps help workers avoid the costs of payday loans or overdraft fees during a financial crunch, but they can still take a bite out of paychecks.
Regulators are set to clarify rules for the services.
As gas prices soar, Target associate Adam Ryan has found himself leaning on a workplace benefit that lets him tap part of his hourly wages before payday: the DailyPay app.
DailyPay delivers what its name promises. The app displays your accrued earnings in the current pay period and asks how much you'd like to have sent to your bank account. If you wait a day or so, the transaction is free. To get your cash right away, you have to pay a $3 fee.
Ryan typically can't wait. He drives 30 minutes each way per shift, four times a week, to get to his job in Christiansburg, Virginia. With gas prices hovering near all-time highs, the early access to his wages lets Ryan fill his tank and make it to his shifts. Still, the DailyPay fee represents a toll on his total compensation, he says.
"It's not the full amount of what you'd get if you waited," said Ryan, who's leading a unionization effort at his store. "But people can't afford to wait."
Ryan isn't the only hourly worker using an employer-provided app to tap wages between paychecks. Largely unregulated, these earned-wage access apps have grown in popularity over the last decade as more employers offered them to workers as a benefit. The EWA apps are third-party services that connect to corporate payroll departments, allowing workers to access a portion of their earned-but-not-yet-paid wages. Major companies, including Walmart, McDonald's and the parent of Outback Steakhouse, offer them as benefits.
Some apps, like Even, charge a subscription fee each month. Others, like the FlexWage app, charge a fee for each transaction. Some workplaces cover fees for a set number of advances, while others provide for an unlimited number of transactions. And some apps, like Instant Financial, charge neither the employer nor the worker, making money by putting the advances on a Visa debit card and taking a portion of the interchange fees that merchants pay on debit card transactions.
The popularity of these apps seems set to grow. With inflation running at the fastest rate in four decades, more than 14% of Americans are living paycheck to paycheck and struggling to pay their bills, according to Lending Club, a peer-to-peer loan company. Almost a third of households didn't have enough emergency funds saved to cover an unexpected $400 expense in 2021.
About 8 million workers in the US had access to EWA apps in 2020, according to estimates by Instant Financial. The company considers more than 50 million Americans earning $60,000 or less a year as potential users.
The apps are an evolution of long-established patterns for the lowest paid Americans. For years, payday lenders have offered immediate access to cash in exchange for annual percentage rates of close to 400%, and workers have incurred credit card interest and overdraft fees trying to keep up with expenses.
Consumer advocates acknowledge that EWA apps are an improvement over payday loans because they don't charge exorbitant fees or interest. Sohrab Kohli, who leads research into financial policy at the Aspen Institute, says the services could be useful for workers who have a couple unexpected expenses a year.
"But if they're using it every paycheck," he said, "this isn't a great solution for meeting that need."
A question of credit
In 2020, the Consumer Financial Protection Bureau found that earned-wage access apps aren't credit services if they don't charge fees (though many do). Advocates have called on the agency to reconsider that stance, which it has agreed to clarify.
Instant Financial and DailyPay representatives told CNET their services didn't constitute credit because advances are based on wages already earned.
"We're changing the way people are paid," said Instant Financial CEO Tal Clark. "We're trying to do it in a responsible way."
Other services, like Dave and Earnin, bypass employers' systems and offer cash advances based on data about when a customer is at their worksite or cashflow in a person's bank accounts. They also charge fees for instant transfers and sometimes ask for "tips," which is a voluntary amount. Earnin says it's not a form of credit.
"If you give people their earnings when they earn them, I don't know why you should call that credit," said Ram Palaniappan, CEO and founder of Earnin. Advocates counter that the services offer money with the expectation of repayment later, which they say is the definition of credit. Still, Palaniappan says, the company is open to regulation to put "guardrails" on the industry.
Earnin maker Activehours settled a class action lawsuit in 2021 over allegations that its advertising misled customers by claiming that the service would reduce overdraft fees. The plaintiffs alleged they'd been charged by their banks for overdrafts incurred when Earnin tried to withdraw funds from their accounts before funds were available. Palaniappan said customers can choose when to time withdrawals and can also choose to route their paycheck through Earnin, which deposits the pay in customers' accounts after deducting the amount of any advances.
Dave, another app that offers advances directly to consumers, partners with a bank to service advances much like an overdraft. The bank is regulated by the Office of the Comptroller of the Currency, a US Treasury department that regulates national banks.
Dave charges customers a fee to receive funds advanced by overdraft instantly on a debit card issued by the company. People can also request that the money be sent to an external bank account for free, which typically takes one to three days. Dave asks for voluntary tips on advances, and also makes money from interchange fees when customers use their Dave debit cards.
While structured like an overdraft fee, Dave CEO Jason Wilk says the company keeps costs much lower for users. "It's ten times better and more friendly than traditional overdraft," he said.
The company is facing a lawsuit over an alleged data breach of a third party service that processed Dave customer information. Wilk declined to comment on ongoing litigation.
Even, the app that Walmart offers its workers, didn't respond to requests for comment. Outback parent Bloomin' Brands declined to comment, and McDonald's acknowledged a request for comment but didn't provide any.
Plenty of workers find access to wages through the apps a benefit.
Meagan Ulberg, who worked at a Sacramento-area Walmart until May, signed up for Even after a misunderstanding about when she'd receive her paycheck. A co-worker told her about the Even app, which let her access some of her earnings on the spot, allowing her to run some errands. Ulberg says she was so grateful, she bought her co-worker a $10 gift card to thank her.
The Even app also helped Ulberg, whose pay fluctuated based on hours and overtime, track her earnings in real time.
"It makes me aware of what my paycheck is doing," Ulberg said.
Walmart, which has offered cash advances through Even since 2017, says it provides the app to help workers budget and get through financial hardship. The company pays for the cost of a subscription, meaning workers get all of their pay.
"In addition to budget planning and saving, access to earned wages is another feature available through Even that helps associates navigate unexpected expenses responsibly," Walmart spokesperson Josh Havens said in a statement. "This app has proven to be extremely well liked by our associates and continues to be one of the most popular benefits since its roll out."
Cash advances or higher wages
Critics of EWA apps say the benefits paper over a deeper problem: wages are too low. According to the Financial Health Network, worker wage gains made during the Great Resignation have been almost wiped out by inflation.
The apps have become popular just as a wave of labor organizing has crashed on the retail and food service industries. Starbucks, REI, Target stores and Amazon warehouses are all facing union pushes, with higher wages a key demand.
Ryan is pushing for a union election at his Target store and says he wants pay raises for his fellow associates. In his store, he says he's seen pay increases come in increments of 8 to 30 cents. Inflation has also cut the value of those raises significantly, he says.
Target said it starting offering the app in 2020 and confirmed that workers pay a fee if they want to access funds on the same day, but declined to comment further.
Trapped in a cycle
Worker earnings, whether from low wages or limited hours, are the very reason EWA apps can endanger their finances, says Yasmin Farahi, senior policy council for the Center for Responsible Lending. "On those margins," she said, "even what looks like a low fee can be problematic."
Research from the Financial Health Network shows that workers who use EWA apps tend to do so repeatedly over consecutive pay periods, illustrating that they aren't making up cash shortfalls in the pay period after taking out advances.
DailyPay chief innovation and marketing officer Jeanniey Walden said the company sees a "curved" trend in which workers take advances for multiple paychecks in a row, but eventually shift to saving their pay after digging out from a cash shortfall. She acknowledges that earned-wage access apps can't overcome outside forces, like historic inflation.
"I don't know that we're able to solve that as much as we're able to help people through," she said.
Lauren Saunders, associate director at the National Consumer Law Center, said it's important to remember that getting access to cash early doesn't mean workers are earning more money.
"What it really shows is that there are a lot of people struggling paycheck to paycheck," Saunders said, "At the end of the day, borrowing isn't going to solve that."