How “Cash-Advance” Apps Are Actually Scamming Borrowers

“Fintech’s colorful, emoji-filled version of payday loans is just the latest in a long tradition of predatory lending.”

By Brock Hrehor, More Perfect Union

There’s a new wave of shady lenders hitting the market, and they’re convincing their borrowers—and lawmakers—that they’re nothing like the payday loan operators or swindlers of old.

A closer look at how these companies work reveals a different story.

Apps like EarnIn, DailyPay, and other “earned wage access” platforms promise users (the majority of whom make less than $50,000 a year) that they can access the wages they’ve already earned, free of interest charges or any extra fees, without waiting until payday.

In an age where more than 60 percent of Americans report living paycheck to paycheck, it’s an enticing option for those who need a cash advance but are wary of traditional payday lenders.

“I grew up seeing people use [payday loans] and the energy is already kind of like down, feels kind of loan-sharky,” Runeda, an EarnIn user, told More Perfect Union. “They're always in buildings that are not well kept, like abandoned shopping malls.”

Apps like EarnIn appear to offer a convenient alternative. Borrowers don’t have to go to a physical location to receive their money, and the apps promise no interest or mandatory fees—because according to the companies behind them, they’re not offering loans at all.

But a study by the California Department of Financial Protection and Innovation found the average annual percentage rate, or APR (the total annual cost of a loan, including interest and any associated fees) of EarnIn and similar apps to be a staggering 334 percent. This doesn’t include the revenue apps like EarnIn derive from hidden charges like subscription fees.

Despite having rates similar to or much higher than traditional payday lenders, these companies continue to argue that their services are distinct from lending. The argument isn’t just for branding, either: It’s a loophole that gives the companies a way around state usury laws.

Interest rates are regulated on a state-by-state basis. In New York, for example, it’s a felony to charge more than 25 percent APR. This effectively bans payday loans, as their business model operates off of eye-watering fees and interest rates. Cash advance apps and their lobbyists, however, say they’re not providing loans at all. They argue that users are accessing their own money rather than borrowing, and that the APR calculation is misleading because their loans don’t last for a full year.

“That's like saying that you didn't violate the speed limit in miles per hour because you didn't drive for an hour. Oh, you were only driving for two minutes,” Andy Morrison of the New Economy Project, told More Perfect Union.

To learn more about these predatory lending apps, the corporate-backed “regulatory” legislation that’s popping up in statehouses across the country, and the community-driven solutions that could help offer a viable alternative for working people, you can watch the full report below:

Reporting by Sanya Dosani. See below for a full transcript of the video.

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BC Nightly News: Millions of Americans struggling with ballooning prices.

Fox News: Rents are too high, childcare is too high.

Fox: There are many American families that are a simple root canal away from financial disaster.

WBALTV: More American families are drowning in debt, US household debt now at 17.94 trillion dollars.

SANYA DOSANI, More Perfect Union: Runeda is one of the 60 percent of Americans living paycheck to paycheck. She works full time to provide for her four year old son. He has a developmental disorder so he has therapy 4 times a week, and needs extra care in general.

RUNEDA (In Car): If you're in a single income household like mine, the odds are kind of stacked against you at that point.

SANYA: These days, when Runda is short on cash, she’s been using EarnIn, one of these new banking apps that call themselves “earned wage access.” And they’ve got a pretty appealing pitch.

EARNIN AD: Did you work today? Probably. Did you get paid for the work you did today? Probably not. You won’t see that till Friday, right?

EARNIN AD: Stop waiting for payday. With Earnin you can get paid as you work.

DAVE AD: I can get you up to 500 dollars of your future money, now.

JASON DERULO, Ad: “I just partnered up with Dave”

SANYA: They’ve got ads with celebs like Jason Derulo, and flashy investors like Mark Cuban. They’ve got Democratic lawmaker support, and lobbyists who sound like Bernie Sanders.

MOLLY JONES PAYACTIV, Washington House: Cost of living has skyrocketed across the country.

RYAN NAPLES, Nevada: Two thirds of Americans live paycheck to paycheck

BEN LAROCCO, New York: Paycheck to paycheck

DAILYPAY REP, Ohio: Paycheck to paycheck

SANYA: They’re fighting for the underdogs, like David slaying Goliath. Goliath being predatory big banks. But people who have actually used these apps have a different take.

RUNEDA: That should be illegal.

LEE: I feel deceived by it, it's crazy. It's absolutely insane.

ANDY MORRISON, The New Economy Project: This is not some scrappy, um, FinTech startup scene. This is an industry that's backed by billionaires like Larry Ellison and Mark Andreessen, to make profits off people who are struggling.

SANYA: Today, I'm gonna show you how EWA apps make life feel like a series of traps. And even if you don’t use these apps, they could affect you too. Because with help from lawmakers, and the nation’s largest employers, earned wage access is perpetuating some of the most unstable parts of our economic system. And with one wrong move, the whole thing could collapse.

SANYA: Here’s how it works. Runeda has connected her bank account to EarnIn.

RUNEDA: So like, if I want to, um, borrow money, it tells me how much I can cash out.

SANYA: In EarnIn language, that amount is her “earnings,” and it’s determined by an algorithm.

RUNEDA: You spin the little wheel and then choose to transfer out.

SANYA: Wait, what's that?

RUNEDA: It says tip what you think is fair. So they're asking for a tip.

SANYA: Do you ever tip?

RUNEDA: No I do not. <laughs>

SANYA: What do you think about this app asking you for a tip?

RUNEDA: The audacity. <laugh>, I am here to borrow money. I don't have any to give you

SANYA: Okay, surely nobody tips their banking app, right? But the data shows that they receive tips 73 percent of the time. This is because the apps are very manipulative. At one point, EarnIn made you click 13 times to opt out of tipping. The dave app also messes with your emotions, telling you your tip is going towards helping hungry children. As you decrease the tip amount, you make the little animated child sad by taking her food away.

SANYA: But an FTC investigation found that for each percentage point of a tip, Dave only donates 10 cents. So if I tip 10 percent on a hundred dollar advance, my tip is 10 dollars, only a dollar of that is going towards feeding hungry kids. That's not enough for 10 healthy meals and the other nine dollars? Those Dave pockets. In SEC filings, Dave reported making 68 million dollars from tips last year, and according to EarnIn:

BEN LAROCCO, Senior Director of Government Relations at EarnIn: About 40% of our revenue is tips.

SANYA: So zero tip.

SANYA: So after opting out of tipping a bank algorithm, Runeda has two options to receive her cash. If she selects this free version, the money could take a day or two to hit her bank account. With the lightning speed option, she can get it right away, but there’s a transaction fee between 4 and 6 dollars.

RUNEDA: And then once you click that, then that would complete the transaction.

SANYA: The next time Runeda gets her paycheck, EarnIn automatically takes back the money she withdrew, plus any fees.

SANYA: So when I heard this I was kinda like, this just sounds like a payday loan, where you borrow a few hundred dollars and pay it back with your next paycheck—with lots of interest, of course.

KEKE PALMER: What are the interest rates?

(employee points)

PALMER: Damn, I thought that was the year of establishment.

(employee shakes head)

SANYA: But all of the ewa app users i talked to said they would never consider taking out a payday loan.

RUNEDA:I grew up seeing people use them and the energy is already kind of like down, feels kind of loan-sharky. They're always in buildings that are not well kept, like abandoned shopping malls.

SANYA: The apps, on the other hand, have bright colors and clean design. You can download them right from apple’s app store and on google play. That’s gotta be worth something, right? They’re sending you puppy videos on snapchat, they’ve got cuddly mascots, and they’ve got paid influencers on instagram and tiktok that reassure you that it’s totally not a loan, because…

INSTAGRAM AD: No late fees, no credit checks, and no interest.

INSTAGRAM AD: It’s your own money, just earlier.

SANYA: And if you don’t see their ads on social media or tv, you may see them at work.

LEE: It was in the teacher's bathroom. Next to the OSHA signs.

SANYA: Lee saw an ad for an app called DailyPay at the school they worked at in Kansas. DailyPay is one of the EWA companies that partner with big corporations like Amazon, Target, Mcdonalds – to offer paycheck advances as a benefit, like PTO or health insurance.

SANYA: So Lee signed up, the school turned over their payroll information to DailyPay, and soon, Lee could start withdrawing money from their “paycheck” whenever they wanted.

LEE: I have money in my account before payday, right? It's almost like endorphins.

SANYA: Like Runeda, Lee grew up watching their parents take out payday loans and saw how financially damaging that was.

LEE: But obviously even with that, like, I fell for this. I didn't see it as a loan. You're not like signing stuff, you know, you're not sitting and reading through a loan agreement. It's just like, it's instant. It's fast and it seems cheap.

SANYA: It seems cheap. A lot of people I spoke to said that exact thing. I decided to find out if it was true.

SANYA: If we want to compare two loans to see which one will end up being cheaper, we can’t just look at the simple interest rate. That won’t give you the full picture. What you want to do is calculate each loan’s APR - or annual percentage rate. I know, this equation looks scary, but don’t worry, there are online calculators that do the math for you. APR is, like, the price of a loan. It takes into account what you’ll pay in interest and in fees, and it also takes into account the number of days you have to repay. The more time you have to repay the loan, the lower the price of the loan. So, let’s say Runeda needs 100 dollars now.

SANYA: If she took that as a payday loan, that would likely cost her 25 dollars in fees, plus 36 percent interest. Now, Virginia law says the payday lender has to give you twice your paycycle to repay. and Runeda gets paid biweekly, so she’d have to pay back the loan a month later. The APR would be 305%. That’s expensive.

SANYA: 36 percent is kind of the upper limit of what we as a society have considered acceptable.

SANYA: So what if you took that 100 dollars out from EarnIn instead? Well, Runeda actually did that yesterday. and i asked her to calculate the apr.

SANYA: Her only fee was that small lightning transfer fee of 3.99. but … she’s going to get her paycheck tomorrow, and even if she needs the money for something else, EarnIn will take back what she owes right away. So she only has 1 day to repay, which means her APR is…

RUNEDA: 1456.35%. Insane. That's a lot. Jesus Christ.

SANYA: A study conducted by California regulators found that the average APR for companies like EarnIn is 334%. But these calculations don’t include all the random hidden charges these apps can have, like subscription fees.

RUNEDA: I don't care how small the fee is. They're getting it right back the next day. That should be illegal.

SNYA: Yes. Quadruple digit interest rates should be illegal. So why aren’t they? Well, interest rates are regulated on a state by state basis. I’m currently in New York, where the APR cap on small loans is 25 percent. That effectively bans payday loans. Their business model just isn’t as profitable without high fees and interest rates, so they don’t operate here. But EWA companies do. Because of an extremely dumb loophole. Lending laws technically only apply to loans.

TAHRA JIRARI: These are not loans.

DAILYPAY LADY: EWA is access to earned wage, not a loan.

BEN LAROCCO: We are advancing money and getting paid back.

SANYA: Right. Guys, it’s not a loan, you’re just borrowing money and paying it back later. And now, how come you don’t have to cap your interest rates?

ANDREW WELCH, DAILYPAY: There is no interest charged ever because these are not loans.

SANYA: Okay, so let me get this straight. You're not a loan because you don’t charge interest, And those fees and tips you charge are not interest, because only loans have interest, and you’re not a loan.

SANYA: If you’re starting to get dizzy, buckle up ‘cause there’s more. EWA lobbyists use words like.

LOBBYIST: Choice.

LOBBYIST: Dignity:

LOBBYIST: Flexibility.

SANYA: To try to convince lawmakers that they’re providing an important service to working Americans. And they started doing this years ago, before most people had ever heard about earned wage access. That's allowed them to define the narrative by repeating the same 5 talking points.

RYAN NAPLES, DailyPay, Nevada: Workers can only access their own money.

DAILYPAY REP, Ohio: Their own money.

ALYSSA, DailyPay, Nevada: It is absolutely not a loan.

NAPLES: Because our product is not a loan, no EWA provider charges interest.

MOLLY JONES PAYACTIV, Nevada: There is no interest

LAROCCO, EarnIn, New York: We do not charge any late fees or interest ever.

JONES, Washington: Wages you have already earned that are trapped in a batch payroll cycle.

EARNIN CEO, U.S. Congress: Antiquated payroll system.

LAROCCO: Arbitrary payday.

ANDREW HERF, EarnIn, Ohio: Arbitrary 2 or 4 week pay cycle.

NAPLES, Massachusetts: Even If we were to assign an APR it would be misleadingly high.

DAILYPAY, Washington: And emphasizing APRs is misleading for a non loan product with no interest or recourse.

NAPLES, Nevada: there's also no requirement to repay.

HERF, Ohio: They have literally forever to pay it back. Because it’s their money, they’re just borrowing against their future self – I shouldn’t say borrowing, they’re accessing wages against their future self.

SANYA: Wait a minute, what did he just say?

HERF, Ohio: They have literally forever to pay it back. Because it’s their money, they’re just borrowing against their future self – I shouldn’t say borrowing, they’re accessing wages against their future self.

ANDY MORRISON, New Economy Project (Watching Video): Oops.

ANDY: They can’t even keep their own tangled knots straight.

SANYA: I was getting lost in the all the corporate doublespeak, so i got help from Andy Morrison. that’s him testifying against ewa lobbyists in the new york state house.

ANDY: These are essentially payday loans by another name.

SANYA: Andy debunked every talking point. First up, that there’s no interest.

ANDY: It's not true. The average effective interest rate on EWA loans is over 330% APR.

SANYA So are fees the same thing as interest?

ANDY: Yes. When the cost of a loan is calculated, it's inclusive of fees. and in this case, it should be inclusive of, of the tips.

SANYA: What about their claim that you never have to pay it back?

ANDY: They have access to your bank account, um, they're getting paid virtually every single time.

SANYA: And those antiquated payroll systems?

ANDY: There's nothing inherently broken about a two week pay cycle. What's broken is that wages are too low, and the cost of living is too high for millions of workers.

SANYA: Is APR really misleading for these short term loans?

ANDY: It's just the standard of measurement for loans everywhere.

SANYA: Andy said EWA companies claim annual percentage rates are misleading because their loans don’t last for a whole year.

ANDY: That's like saying that you didn't violate the speed limit, uh, in miles per hour because you didn't drive for an hour. Oh, you were only driving for two minutes.

SANYA: And finally, all together now, is it really your own money?

ANDY: What they're doing is lending, they're offering a worker money against their future earnings. The worker has to pay that back. It’s a loan.

SANYA: Just in the past few years, these apps have drained 500 million dollars in fees and tips from working Americans, and that’s just in New York. This should piss off lawmakers, and yet…

MORRISON: A lot of lawmakers kind of fall for it, hook, line, and sinker.

WASHINGTON HOUSE: Earned Wage Access, in my opinion, does not qualify as a loan

TOBY YUREK, Nevada: I think it is an amazing concept

NY STATE ASSEMBLY: You're not loaning me, you know, the money, it is mine. I earned it.

NICOLE CANNIZZARO, Nevada: I do think this is a real solution for our constituents

SANYA: Once they win over enough lawmakers, fintech lobbyists get one of them to introduce a “regulatory” law. during the hearing they’re like, ‘hey we’re not predatory, look we want to be regulated.’

PHIL GOLDFETTER: I crisscrossed the country generally supporting legislation

SANYA: Meanwhile the legislation was written by fucking Alec, the guys that are secretly behind tons of conservative state laws like, state your ground, bills that weakened labor unions, and voter id laws. They're basically a fill-in-the-blank bill factory for pro-corporate lawmakers. That’s how the same EWA bill ended up on statehouse floors across the country. It gives legal blessing to the way these companies already operate, and ensures that they won’t have to cap fees or disclose APRs or be subject to other lending rules.

ANDY: And it becomes extremely difficult to, um, remove them once they become entrenched.

SANYA: And once people start using these apps to help pay the bills, they quickly become dependent on them. The average EWA user takes out 36 advances a year, the average payday loan consumer takes out 8. As I talked to Runeda about each of her recent EarnIn advances, I started to see how that happens.

SANYA: The first time Runeda used Earnin It was a couple years ago after her son was born, she had just switched to this remote job, which was a pay cut, but it let her stay home and care for her son at the time. And then after she went back to her normal job, she actually stopped using Earnin for nearly two years. She got on a stable financial footing. She even bought this house.

SANYA: But housing costs are expensive and for a bunch of complicated reasons, her child support payment is less this year than it was before. And that put Runeda in this really precarious position where if one thing went wrong, it would completely throw her off financially. And about two weeks ago, that's exactly what happened.

RUNEDA: So, uh, my son wakes up, uh, really early sometimes, and it was like five o'clock in the morning. And I went to try to open an app on my phone and it wasn't loading. And I was like, did they turn my internet off? I checked the router and it said, your service has been interrupted for non-payment. And I'm like, what the heck are you talking about?

SANYA: The bill used to be on autopay, but for some reason wasn’t anymore.

RUNEDA: They told me I had to pay like over $200. I had like 50 bucks in my bank account. That was the first domino and everything else just kind of fell apart from there.

SANYA: Runeda borrowed 150 dollars from EarnIn to pay the internet bill, the 20 dollar reconnection fee, and the 6 dollar EarnIn fee.

RUNEDA: I had to, like, go down to the McDonald's to use their wifi.

SANYA: That setback meant Runeda had to borrow again just 3 days later for gas, and 4 days after that for a utility bill. Which meant her next paycheck was smaller, which meant she ended up borrowing again 3 more times over the next week. Leading to another small paycheck, which led to more borrowing, and another small paycheck, until she was trapped in a debt cycle. By comparison, the previous month, Runeda only borrowed one time.

RUNEDA: You don’t have room to breathe, it’s like you can’t breathe. Every dollar is accounted for. It leaves no room for error.

SANYA: Fintech’s colorful, emoji-filled version of payday loans is just the latest in a long tradition of predatory lending. I mean, loan sharks have existed since ancient Mesopotamia.

ANDY: There are prohibitions on usury in practically every religion.

SANYA: If they’ve innovated anything, it’s that they’ve made it way too easy to get into debt.

LEE: when you go to the payday loan, you are kind of watching your backs. Who's seeing me walk into this building? But the cash advance, uh, apps, it's private. There's this huge social stigma against people who are poor. Everyone I know is in debt. But we have to pretend like we're not. And there's a lot of shame wrapped up in that.

ANDY: In our society, people are made to feel that if, if they're struggling financially, it's their own fault. When in fact, we have a financial system and an economy that is designed to extract money from people. And I think the EWA industry really exemplifies that.

SANYA: Now, at this point in a video about consumer exploitation I would normally give a shout out to Lina Khan over at the FTC, which had been going after EWA companies the last couple years. I'd also mention that last year, the Consumer Finance Protection Bureau issued a statement that earned wage access is a loan and should be regulated as such. But Elon Musk is on a mission to delete the CFPB, and the Trump admin has already started trying to make that happen. Closing headquarters and telling staffers not to do “any work tasks”. and Lina Khan is out too. Her replacement, Andrew Ferguson, is taking the FTC in a different direction.

FERGUSON: The previous Administration they were all about rules rules rules. That’s not what we’re about in the Trump Administration.

SANYA: Those anti-regulation vibes are already playing out in the states. Twelve states have laws on the books regulating EWA, but only two of those say that paycheck advances are loans. The other ten are EWA-friendly Alec legislation. And if you live in one of these 18 states with EWA legislation pending – make sure your state’s bill isn’t the Alec one. EWA lobbyists are trying to make it seem normal that if you’re broke you should be taking out dozens of small loans a year to get by – which, as I've shown, just makes things worse.

ANDY: The solution to thirst isn't lead contaminated water.

SANYA: So, what are the solutions for people struggling to get by? Well, one could be community-driven credit unions, which can offer people fair loans at reasonable rates. Or, to dream even bigger, what if people didn’t need to turn to debt in the first place?

SANYA: That’s one of the reasons advocates like Andy support public banks – they’re run by the state, and therefore, are accountable to us, instead of private shareholders. And since they don’t exist to turn a profit, they could invest our taxes into things that would help our communities, like building affordable housing.

ANDY: It's part of the recipe for how we create an economy that works for people that doesn't exist to extract profits, but actually exists to build, um, wealth and root wealth in local neighborhoods so that people can thrive.

SANYA: But instead of talking about any of that, we’re stuck debating the definition of a loan, and whether biweekly pay is good or not. That is why EWA is so dangerous, even if you don’t use it. And even worse, by normalizing debt as a way to deal with low wages, they’re reducing the pressure that would naturally build on employers to pay people more, thus keeping wages low. Because the obvious solution here is literally just paying people more. That's what finally helped Lee and Runeda break out of their debt cycles: Lee, when they got a new job that paid more, and Runeda when she got a raise at her current job.

RUNEDA: One day I would just love to like, not have to think about it. Like, I don't have to be filthy rich. I just don't wanna have to think about what's in my bank account every day. That'd be nice, 'cause all I care about is making his life better.

SANYA: Thanks for watching the Classroom. We’re always looking to tell more stories unpacking the economic systems that impact our daily lives. What other issues do you want to see us cover? Sound off in the comments and don’t forget to like and subscribe.