Early Paycheck Access Apps – Lifesavers or Scams?

<p>In the grand tale of "how to make ends meet," it seems the
latest chapter involves paying for your own paycheck. Yes, you read that right
– the era of early paycheck access apps is upon us. The old payday loan shops
are back, but in the form of apps.</p><p>Cashflow crisis</p><p>For many around the world, the state of their personal finances is pretty
grim with costs rising no matter where you live. Remarkably, or perhaps not
remarkably at all, over a third of Americans claimed that they couldn’t <a href="https://www.federalreserve.gov/newsevents/pressreleases/files/other20230522a1.pdf">rustle
up $400 for an unexpected emergency</a> without breaking into a cold sweat, and
the average Joe and Jane are lugging around a whopping <a href="https://newsroom.transunion.com/q1-2023-ciir/">$5.7k in credit card debt</a>.
Ouch.</p><p>So, how do we make it to the end of the month? Well, here’s where early
paycheck access apps come in. For those who are blissfully unaware of the
concept, the apps offer to hand over your hard-earned cash a tad early, with
one little catch: you've got to pay a fee for the privilege. Think of it as the
world's most inconvenient subscription service, and it’s one that’s been around
for a long time, albeit up until recently payday loans, or early access schemes, have been run through brick and mortar stores.</p><p>These apps fall into two categories. The first group is integrated
into your employer's payroll system. It lets you snatch your paycheck ahead of
schedule, slicing off a small chunk as payment when the real payday rolls
around. If that doesn’t tell you that the entire system is rigged against you,
then nothing will. Employers agreeing to work with these apps because their
employees are struggling… <a href="https://www.hrmagazine.co.uk/content/news/cipp-launches-earned-wage-access-guidelines/">One
in ten UK firms</a> are offering the “service” to their employees.</p><blockquote><p lang="en" dir="ltr">With Early Paycheck you can access your Direct Deposit up to two days sooner!<a href="https://t.co/yiBGfy0yUS">https://t.co/yiBGfy0yUS</a> <a href="https://twitter.com/hashtag/earlypay?src=hash&amp;ref_src=twsrc%5Etfw">#earlypay</a> <a href="https://twitter.com/hashtag/earlypaycheck?src=hash&amp;ref_src=twsrc%5Etfw">#earlypaycheck</a> <a href="https://t.co/Aq1Z4nIm0f">pic.twitter.com/Aq1Z4nIm0f</a></p>— CFFCU (@CommFocusFCU) <a href="https://twitter.com/CommFocusFCU/status/1664572710247120896?ref_src=twsrc%5Etfw">June 2, 2023</a></blockquote><p>The second category, more direct-to-consumer in style, is like peering
into a financial crystal ball. It gives you a sneak peek of what you're
expected to earn in the future and promptly dishes out your digital dollars.
After all, who needs patience when you can have instant gratification? You’re mortgaging
your present against your future. Revolut started <a href="https://www.pymnts.com/digital-first-banking/2021/revolut-intros-payday-early-wage-access-for-uk/">offering
the service in the UK in 2021</a>.</p><p>The demand for early paycheck access apps is soaring higher than SpaceX
rocket, incidentally, it’s worth noting that <a href="https://www.financemagnates.com/trending/elon-musks-rollercoaster-twitter-spacex-and-a-borrowed-billion/">Musk
borrowed heavily from SpaceX</a> to buy Twitter, sorry, X. Anyway, in 2020,
users walked away with a cool $9.5 billion through early wage access apps,
compared to a measly $3.2 billion back in 2018. Clearly, we're all eager to get
our hands on our hard-earned dough sooner rather than later.</p><p>Incredibly, a whopping 80% of users rely on them to foot the bill for
essential expenses like groceries, rent, and childcare. This is no game; it's a
lifeline for many.</p><p>The downside</p><p>But, here comes the problem. Users are paying for the privilege of
accessing their own hard-earned cash. Depending on the requested amount, you
might be forking over anywhere from under a dollar to a whopping twenty bucks –
just to access your own money. Talk about highway robbery.</p><p>Between January 2016 and January 2023, desperate workers filed more than
450 complaints against these app providers with the US’s Consumer Financial
Protection Bureau. Why the uproar? Well, these fees can snowball fast, and a
recent report revealed that fees for early wage access programs clocked an average
annual interest rate of <a href="https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/2021-Earned-Wage-Access-Data-Findings-Cited-in-ISOR.pdf?emrc=08148f">more
than 300%</a>. </p><p>Across the US, and the UK, it seems low-wage workers are caught in a
financial web where even attempting to make a living wage comes with a price.
Early paycheck access might sound like a lifesaver, but the game is clearly rigged.</p><p>Now, we're off to ask the boss for an advance.</p>

This article was written by Louis Parks at www.financemagnates.com.