What are Earned Wage Advances?
Earned wage advances (EWAs), sometimes called payday loan apps, provide people with access to money before their next payday. Essentially, EWAs are short-term payday loans for people who cannot afford to wait for their next paycheck.
Many EWAs operate through agreements with employers and are integrated into the employer’s time-and-attendance systems. In some cases, the EWA lender advances cash to the borrower and the advance is repaid directly from the borrower’s next paycheck. In other cases, the EWA lender debits the borrower’s bank account on the date it expects the paycheck to be deposited.
Most EWAs charge “expedite fees” if the borrower wants the money immediately. Because EWAs are used by people who can’t wait for payday, studies show that up to 90% of borrowers pay these fees.
EWA payday loans also rely on purportedly voluntary “tips” or “donations” from borrowers. A default tip is often preselected, and providers use various methods to make it difficult to decline tipping. Consumers may believe that their future access to the service will be cut off if they don’t tip, or they may have to navigate multiple screens or settings to avoid paying a tip altogether.
Why EWA loans might be too good to be true
Proponents of EWAs market them as a less expensive alternative to traditional payday loans. However, EWAs can still be extraordinarily expensive. A California study found that the average annual percentage rate for EWAs exceeded 330%. The Connecticut Banking Commissioner found that EWAs offered in that state carried APRs as high as 4,280% when all costs, including tips, were included. EWA pricing is particularly abusive because it is so non-transparent, with lenders obscuring the costs by labeling finance charges as expedite fees or tips.
EWAs can also create cycles of reborrowing. A worker who cannot cover an expense with their current paycheck and draws on next week’s earnings is likely to face a shortfall when the next paycheck arrives, leading to another advance. As a result, many EWA transactions are driven by the shortfall caused by the previous loan rather than by new financial need. Workers who don’t earn enough to meet regular expenses may find themselves trapped in a cycle of repeated borrowing.
Frequently Asked Questions about EWA payday loan in Minnesota:
Who are the most common EWA lenders?
Some of the most prevalent EWA providers are EarnIn, Brigit, Dave, and Clair. Many operate through payroll and time tracking apps like Gusto or Homebase.
Are cash advance apps legal in Minnesota?
Yes, but providers must comply with Minnesota’s consumer small loan and short-term loan laws. They also must register with the Minnesota Department of Commerce and obtain a license.
Does Minnesota law allow EWAs to charge interest?
Minnesota law sets a maximum interest rate on EWAs at 50% annually. However, if the lender seeks to charge between 37% and 50% interest, they must conduct an ability-to-repay analysis before lending. This analysis is not required for interest rates of 36% and below.
Can EWAs charge “instant transfer” fees in Minnesota?
Minnesota law prohibits EWA payday lenders from charging any fees whatsoever, so fees labeled as “expedited” or “instant” likely violate the law.
Are "tips" on cash advance apps really voluntary?
EWA apps claim tips are voluntary. In practice, however, providers may use default settings, prompts, or other techniques that make tipping difficult to avoid. Regardless of whether they are labeled as "voluntary," many courts treat tips as interest or finance charges because they are paid in connection with receiving the loan.
What happens if I don’t pay back a cash advance app?
Many EWA providers claim their advances are "non-recourse," meaning they will not sue borrowers or send them to collections. Whether this is actually true remains to be seen. Even if an EWA lender doesn’t sue you, it may use other methods to encourage repayment, such as repeatedly attempting to debit your bank account or cutting off your access to the app until the balance is paid.
How can I stop a cash advance app from taking money out of my account?
EWA lenders make it exceedingly difficult to revoke authorization in time to stop the scheduled payment. Nevertheless, you may be able to revoke authorization through the EWA app, website, or customer service email address. Keep a papertrail of all communications, including screenshots if possible.
If you’ve revoked authorization and the EWA lender debits your account anyways, notify your bank immediately, preferably in writing. Explain that you withdrew authorization before the debit occurred and the lender took the money anyways. Provide the bank with your proof of revoking authorization and ask them to investigate the unauthorized debit. Keep copies of all correspondence with the bank.