Tips and Fees ARE Interest: APR is industry standard

In our last topic, Finneas covered the basics of these payday loan apps or Earned Wage Access (EWA) lenders.↗ (opens in a new tab) These sharks like to say they do not charge interest. They claim their products are different from payday loans because workers can choose what to “tip.” But those tips, along with other fees, are how these companies make their money.

Here’s what we know:

• It adds up fast. Research shows that 73 percent of consumers tip when using these apps. On Earnin, it takes 13 clicks just to opt out of tipping (National Consumer Law Center)↗ (opens in a new tab).
• It’s not optional. When borrowers are pressured to tip, or made to feel guilty if they do not, the charge functions like interest. The more you tip, the faster you get your money. That is not generosity. That is a business model.
• They find other ways to charge. EWA apps assess per-transaction fees, expedite fees, subscriptions, and more. No matter what they call it, it is the cost of borrowing money.
• The rates are staggering. The average annual percentage rate (APR) for observed EWA loans repaid in seven to fourteen days was 383 percent. That is nearly identical to a typical storefront payday loan, which averages 391 percent (pg. 6 CRL Report↗ (opens in a new tab)).
• Frequent use is costly. Heavy users paid an average of $421 in combined loan and overdraft fees in the first year. That is more than six times what light users paid (pg. 7 CRL Report↗ (opens in a new tab)).

The truth is simple. Tips and fees are interest, no matter what the industry calls them. And the result is the same: people paying hundreds of dollars just to access their own wages a few days early.