What You Should Know About the Rise of Cash-Advance Apps

 Posted on October 06,2020 in Finance Company Collections

As the economic repercussions of the COVID-19 pandemic persist across both Illinois and the entire nation, consumers have been looking for new ways to fund their daily expenses from paycheck-to-paycheck. Enter the cash-advance app, clever applications on their smartphones that link to their bank accounts and offer small cash advances each pay period provided the user meets certain requirements. Among them are such apps as Earnin, Dave, Branch, and Brigit, with countless others cropping up every day on your smartphone’s digital marketplaces. With these apps becoming more and more popular, many financiers and finance companies funding such major joint “fintech” ventures might be wondering how they can ensure appropriate debt collection. Overall, though, that might be the least of their worries at this point. Here are a few reasons why.

Regulatory Issues

While to many consumers, these cash-advance apps might seem like a brave new world of brand-new trending apps that could really save them from some tough times, many financial experts argue that these apps are really payday lenders disguised as newfangled technology. The reason? Because many of them collect “optional” tips on every payday advance, many of which amount to interest rates comparable to standard (and high) payday-loan rates. In many cases, these apps are offered in states where payday loans of certain high interest rates are outlawed, or payday loans are entirely against the law. Such regulations have already taken their toll on the app Earnin, which was forced to disable the “tip” option a year ago in New York.

How Cash Advance Apps Attract Borrowers and Ensure Repayment

These apps stay afloat for four primary reasons:

1. Convenience: It is much easier for someone to touch a finger on a screen to select a specific amount of a cash advance without even considering the consequences on a future paycheck than it is to sit in a payday loan store, filling out paperwork.
2. Seamless Linking with Banks: The digital ease with which people can verify their banking and employment information on an app makes it a breeze to seize their paycheck’s cash early. Plus, by being linked to the consumer’s bank, these apps can instantly grab back their funds the moment the paycheck hits the consumer’s account, often with little protest (or awareness) from the consumer.
3. Cutting-Edge Technology and Features: Many of these apps offer in-depth analysis of the user’s finances based on spending habits, as well as providing savings and retirement options. These and other high-tech features make people feel like they are getting more of a value-add than they would with a simple payday advance.
4. Desperate Times: As mentioned above, many of these apps request “tips” or even membership fees. When falling on hard times like now during the COVID-19 pandemic, people are more willing to spend money they do not have just to get advances on their paychecks.

Contact a Chicago Finance Company Collection Attorney

Cash advance apps are relatively new to the financial industry, but as they continue to expand their reach and influence, the regulators will continue to crack down from state to state. Soon, if it has not happened already, many of these cash advance apps will face similar legal challenges as more highly regulated financial institutions like banks, credit unions, and even payday lenders. When that time comes, you need a Chicago debt collection lawyer who can help guide you through the process of getting the money back that is owed to you and your company. That is why you should call the experienced team from Dimand Walinski Law Offices, P.C. at 312-704-0771 for further information.

Sources:

https://abcnews.go.com/US/turn-payday-advance-apps-coronavirus-batters-economy/story?id=70118508

https://time.com/nextadvisor/banking/cash-advance-apps/

https://www.nytimes.com/2020/10/02/your-money/cash-advance-apps-paychecks.html

https://nypost.com/2019/09/01/cash-advance-app-earnin-changes-its-tune-amid-nys-probe/