Early Earned Wage Access May be a New Form of Payday Loan

Early wage access programs, on their surface, can seem like a great way for workers to get the money they need to cover unexpected expenses but avoid the high costs of payday loans. However, these earned wage access programs may in some cases be deceptive, charging workers high fees and essentially becoming a new kind of payday loan.

What is an Earned Wage Access Program?

The point of an earned wage access program is to allow workers to gain access to their earned wages prior to their normal payday. This can be very useful in instances where workers are hit with unexpected expenses. Through these programs, workers can access a portion of the wages they’ve already earned that they would be getting paid in their next paycheck.

Usually, these loans are very small in the grand scheme of loans, generally $500 or less. This kind of advance can be the easiest way for an employee to be able to cover surprise expenses like hospital bills or car problems.

Unsurprisingly, these kinds of cash advance apps have become more popular amidst the ongoing coronavirus pandemic.

However, some of these early wage access programs may charge workers for this access, In the worst cases, it can launch a vicious cycle of balloon-payment loans, according to the National Consumer Law Center.

Not all early wage access programs look the same. Indeed, some providers charge no fees at all to offer this access to workers. Others, however, charge anywhere from between $2.50 per day to $6 per month.

Some programs are employer-based, and operate through a contract with the employer itself, meaning that time-and-attendance records can be accessed to determine the worker’s actual earned wages at the time of request. These methods are generally repaid through payroll deduction. Others are direct-to-consumer, which estimates earned wages and does not require employer approval. These can trigger nonsufficient funds (NSF) or overdraft fees, depending on the timing of the payment.

These programs often limit access to earned wages to about 50 percent, so that the worker will get at least half their paycheck on their actual payday. Others are less cautious, offering “use-it-or-lose-it” access to more, even 100 percent, of their earned wages.

In most cases, if they charge for this service, these early wage services generally function like loans, even when they claim that they do not, the National Consumer Law Center notes.

If an employee requests an advance on their earned wages and they are charged a fee for it, they may actually end up incurring the equivalent of a high annual interest rate. And many who access these early earned wages are repeat borrowers, which can become a never-ending cycle.

Some services don’t charge an interest rate or fee at all, but charge a significant tip. According to one class action lawsuit against Earnin, one such early wage access app, the company charges “no fees, interest, or hidden cost,” but instead charges a high suggested amount in a supposed “tip.” Borrowers can choose not to pay the tip, but failure to do so reduces how much they are allowed to borrow further down the line, the class action lawsuit alleges.

Filing an Earned Wage Access Lawsuit

If you used an early earned wage access program through an app or service to get an advance on your earned wages, you did not expect that the interest rates would be so high, and believe you were deceived about the nature or cost of using this service, you may be able to join this early wage access class action lawsuit investigation.

Filing a lawsuit can be a daunting prospect, so Top Class Actions has laid the groundwork for you by connecting you with an experienced attorney. Consulting an attorney can help you determine if you have a claim, navigate the complexities of litigation, and maximize your potential compensation.

Join a Free Pay Advance App Class Action Lawsuit Investigation

If you use a wage advance loan app and have had a negative experience, you may qualify to join this wage advance loan app class action lawsuit investigation.

Get a Free Case Evaluation

This article is not legal advice. It is presented
for informational purposes only.