How “Cash Advance” Companies Can Bypass Payday Lender Regulations

When is a loan not a loan? In the case of a “non-recourse cash advance”.

Why is this important: By advancing money while qualifying interest as a “fee” or “tip,” companies like Earnin and Wagestream can bypass regulations that cap interest rates.

What is happening: Earnin is an app that offers users up to $ 100 per day. When you sign up, you transmit your bank account information and notify Earnin when you get paid. Earnin automatically debits your bank account for the amount it loaned (they would say “advanced”). This week, the company announced that it will start helping users lower their health care bills.

  • Winning users can leave an optional tip for its services. As the New York Post reported, and Axios confirmed, the recommended tip can reach an interest rate of 469%. If a loan asked for that much, it would be illegal in many states, including New York.
  • UK based Wagestream, which closed a $ 51 million fundraising round this week, operates on a similar model, but with a flat fee of around $ 2 for each use of the service.
  • Companies “advances of merchant funds” provide a similar service for small businesses, offering a cash advance in exchange for reduced future credit card sales. They too claim to simply charge a fee rather than an interest rate. But they are acting like extremely aggressive lenders. And now they’re under investigation by the FTC.

The bottom line: In principle, your credit is not damaged and these companies cannot sue you if they cannot get their money back. Plus, the CEOs of Earnin and Wagestream tell Axios that their companies aren’t lenders because they give you money you’ve worked for before. But then: if it’s already your money, no one knows why you would need to pay for it.


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