You can rename it, rebrand it, repackage it, reinvent it, and revamp it: You can’t hide the reek that is predatory payday lending.
And these latest “earned wage access” programs appear to be picking up pace with consumers.
Millions of American workers are paying to gain early access to their paychecks in one of two ways: a business-to-business program through their employer or direct-to-consumer. These programs let workers tap into a portion of their coming wages before payday, and often at too high a price.
While these earned wage access programs offer time-sensitive benefits for workers like fast access to funds, rather than the financial stability offered through regulated small-dollar loan programs at credit unions, the service mirrors many of the financially unhealthy or unstable features of high-cost debt such as predatory payday loans. Such unintended consequences like delinquency in paying back the loan is all-too-common, causing even further harm for the worker including severe reductions to their credit scores, according to many economic experts and consumer advocates.
While he says earned wage access can, if used ideally, have the stated benefits, financial services industry expert Marshall Lux says that just like predatory payday loans, overuse and sky-high interest rates of more than 330 percent – and reaching as high as 400 percent – can easily turn these programs into “payday loans on steroids,” especially since the service has expanded in popularity so quickly.
Even Datos Insights strategic advisor Thad Peterson advises caution on using earned wage access, highlighting a top concern that workers can use multiple apps at the same time to access more debt than they can pay back in the time provided. And just like in any other payday lending scam, abusing them in this manner can leave workers “[ending] up in the black hole of payday lending, and you can’t get out of it.” This, as opposed to the financially-inclusive, stable, affordable, and digitally-accessible small-dollar loan programs like QCash already available in mobile apps of credit unions across the country.
Earned wage access: More than workers bargain for
These earned wage access providers will offer the perspective that companies and the workers who use their service can cover any short-term expense that might pop up before payday arrives; an unexpected car repair, monthly bills, or a child’s sports requirements. Sound familiar? That’s right: the same service a credit union’s mobile loan product could offer, but without the safeguards to protect and build workers’ credit scores.
What these companies can’t defend is the universal flaw in their product: the danger of the debt trap. Not a good mix for those workers earning just $50,000 a year or less, especially when the average user accesses an earned wage access product nine times a quarter. Not exactly the mark of financial stability and health.
There’s simply no comparing earned wage access to the safety, stability, and financial inclusion that a responsible small-dollar loan offers every member at their credit union, regardless of income level and state of financial health. According to the FDIC, the rise of non-bank lending actually amplifies financial instability, especially during an economic crisis. That’s why the power of QCash’s Life Event Loans, in direct partnership with credit unions across the U.S., should be the default answer for U.S. workers experiencing more month than money.
Earned wage access programs represent just another short-cut option that fails to address the underlying challenges workers and consumers face every day. Using the digital QCash small-dollar loan platform through your credit union, members have the immediate chance to begin the journey to rebuild their financial lives, wherever and whenever they are, and within seconds of applying right from their cell phone.
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