'EarnIn' advance cash before payday; watchdogs say it preys on the poor

A new way to get a payday advance is emerging in the area of finance called fintech. These financial apps aren't banks, but they move money around. They are striking up controversy nationwide by filling a gap for families living paycheck to paycheck.  

These app companies claim they are not offering loans. But consumer watchdogs say, sure they are, and liken them to payday loans, which in Georgia, are illegal.

Liz Coyle of Georgia Watch, a consumer watchdog group, doesn't hesitate when she says, "These products really are payday loans." 

Sen. Matt Brass, R-Newnan, sponsored a bill last session that says the opposite.

"There are some that consider it to be payday lending, but I do not because it's money already earned," Brass said.

These fintech products are "earned wage access" providers. There are a lot of them out there. But EarnIn was a hot topic in the 2023 legislative session. It wanted a definition on the books that does not include them in the loan business.

Yvonne Chao, a spokeswoman for the financial app, talked to the House Banks and Banking Committee.

"There seems to be a lot of miseducation on this area," she pointed out. 

And on that point, Earnin's Silicon Valley representative was right. These apps work in a gray area of finance.

EarnIn is an app. You download it and connect it to your checking account. EarnIn doesn't have access to your paycheck, but instead it looks at your account to make sure you get a regular paycheck then it gives you the money requested. Their webpage says repeatedly that it's not a loan. A loan requires mandatory fees or interest. EarnIn instead asks for voluntary tips. But you are charged a few bucks if you want your money faster than three days.

"They claim it's a way to get a payroll advance so that you could get access to money you've earned, and they claim it's voluntary to pay them a fee," Coyle told the FOX 5 I-Team. "But what we've found is that is not the case."

The National Consumer Law Center tracks groups like this. NCLC writes that you have to opt out of that voluntary tip. Example: They show an already-populated $11 tip on a $100 advance of your paycheck. Many use the $4 expedited fee to get the money faster. This they write comes to 498 percent APR.

Chao told the committee that's not how it works in Georgia. 

"In Georgia, the average tip is $2.24 and about 50 percent of transactions don't include tips at all. About 18 percent of folks have never tipped in 2022," she said.

Here's another hiccup. Folks are low in cash then fees and tips are taken from their checking account. That's when the overdraft charges begin.

"A lot of people have been harmed because they didn't realize EarnIn was going to do that, and they might not have sufficient funds, and they are now they're getting charged overdraft fees. Sometimes several overdraft fees in a single day," said Coyle, the executive director at Georgia Watch. 

Remember, EarnIn and apps like it are third-party apps. They don't actually have your paycheck. They are not in any way associated with your employer. These fintech products have been the subject of class-action lawsuits. Chao addressed this with Georgia legislators earlier this month.

"People thought that if they used EarnIn then there was some sort of agreement made with the banks that there would be no overdraft fees. But as we know, the overdraft fees are bank fees," she said. "Now, after that settlement we have made it very clear on our app that if you use EarnIn you may still be charged a third-party bank fee.

But consumer watchdogs who got payday loans banned in the state are on high alert over this new emerging industry.

Liz Coyle is staying vigilant. 

"You keep borrowing, and you're trapped in a cycle of debt. It's an endless debt trap just like it is with payday lenders," she said.

Many employers offer early access to paychecks for free. It's generally for emergencies with limited opportunities to use it each year. Ask your employer about this potential opportunity.