A recent report by the Center for Responsible Lending (CRL) highlights significant concerns regarding the use of cash advance apps such as Brigit, Cleo, Dave, EarnIn, and FloatMe. Consumers who use these apps often face triple-digit annual interest rates, frequent reborrowing, and increased bank overdraft fees.
Key Findings:
- High Interest Rates:
- The average Annual Percentage Rate (APR) for a cash advance repaid within 7 to 14 days is 367%, comparable to payday loan rates.
- Increased Overdraft Fees:
- Users experienced a 56% increase in overdraft fees after starting to use cash advance products.
- Frequent Reborrowing:
- 75% of users took out at least one advance immediately after repaying a previous one, indicating a cycle of debt.
- Financial Strain:
- Many low- to moderate-income users struggle to meet expenses, and repaying these advances exacerbates their financial difficulties.
Context and Implications:
- Policy Movements:
- Some policymakers are considering exempting advance apps from consumer protection laws, despite evidence of harm.
- Consumer Impact:
- The report suggests that cash advance apps, similar to payday loans, can trap consumers in a cycle of debt rather than providing relief from financial shortfalls.
Research Methodology:
- CRL’s findings are based on transactional data from over 37,000 advances matched to nearly 2,000 users, along with a qualitative diary study of 18 users over three weeks.
This report underscores the need for careful consideration and regulation of cash advance apps to protect consumers from high costs and financial instability. For more detailed insights, you can read the full report here.
The Hidden Costs of Payroll Advance Apps – CPA Practice Advisor
