A 36% Fee to Access Your Pay Early?

Advocate Andy

Early Wage Access Product Gusto Charges High Interest for Access to Earned Pay

Early Wage Access (EWA) app Gusto offers employees at participating companies an opportunity to get an advance on expected pay. The service allows employees to request up to 40% of their expected pay days ahead of actual payday, with the loan being repaid when the employee’s payroll check is deposited.

Here’s more from Gusto on how the service works:

With Cashout, you can request a portion of your estimated paycheck before payday. Then, your Cashout loan is automatically repaid through your regular direct deposit paycheck.

As Gusto notes, the early access to pay comes with a fairly high interest rate:

Cashouts deposited to an external bank account will incur a small fee. The fee will be $5 or 36% APR of the loan amount, whichever fee amount is lower.

Consumer advocates have warned that repeated use of early wage access products like Gusto can create a debt trap cycle that is difficult to escape. The high interest rate or fee means a borrower can end up constantly behind in terms of meeting obligations and so a cycle of borrowing (and paying fees to access earned wages) ensues.

The services “are just a kinder version of payday loans,” National Consumer Law Center (NCLC) Associate Director Lauren Saunders said.
In fact, Saunders testified before a House Financial Services Committee Task Force recently about the potential dangers of EWA products.
Earned wage access products are a form of payday loan — wage advances repaid on payday — and should be regulated as credit,” Saunders said.

Lynne Marek in Payments Dive reports:

The issue has taken on more importance as workers increasingly use earned wage access (EWA) services. U.S. households tapped such services nearly 56 million times last year for about $9.5 billion in pay under such employer-based programs, according to estimates from research firm Aite-Novarica. In addition, millions more have downloaded apps that provide cash advances on their pay without employer participation, the firm said in a February report on the trend.

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Andy Spears is a middle Tennessee writer and policy advocate. He reports on news around public policy issues - education, health care, consumer protection, and more.

Nashville, TN

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