Beware the Lending Bear
That Friendly App Could be Hiding a Kinder, Gentler Payday Loan
Jason Wilk is the CEO of a banking app that wants to help you out — and keep you from paying expensive overdraft fees. At least, that’s the premise behind the “Dave” app that allows consumers to take out payday advance loans of up to $250 right from their phones.
American Banker reports that Dave is now a public company thanks to a multi-billion-dollar IPO.
The Los Angeles-based Dave merged with a blank-check company sponsored by Victory Park Capital, VPC Impact Acquisition Holdings, on Thursday. Dave is now publicly traded on the Nasdaq exchange and valued at $4 billion. It was set to offer 376 million shares at $10 per share, according to a federal securities filing.
Dave, which launched in 2017, was one of the first neobanks to offer an alternative to overdraft fees. It offers members small loans called ExtraCash they can use when their bank accounts run low.
Jason Wilk, CEO of Dave
So, what’s the problem? There’s a cool CEO in the requisite t-shirt and hipster beard and there’s an app that is user-friendly and purportedly saves users money. Plus, it’s a convenient way to avoid those gross payday loan stores.
Some analysts suggest that apps like Dave and others are merely a kinder, gentler payday loan.
The End of Payday Loans or a Kinder, Gentler Predator? | by Andy Spears | Dec, 2021 | Medium
Adam Hardy writes in Money.com that a number of cash-advance apps are suggesting they offer a viable alternative to payday loans but may instead offer a similar product in a more tech-friendly package.
Hardy reviews the policies and practices of apps such as Dave, Earnin, and Brigit and finds that:
“. . .consumer experts warn their fees are just as bad as — if not worse than — traditional payday loan APRs, with rates that can easily top 300%. And, they say, the apps can actually trigger overdraft fees.”
The App uses a friendly cartoon bear as its mascot. But, a 300% interest rate to borrow money a few days in advance is anything but friendly. Now, Wilk and his team at Dave are taking the money they’ve earned from app-based payday loans and using it to get into the cryptocurrency business.
According to American Banker:
CEO Jason Wilk said in an interview that Dave — which was poised to raise as much as $3.8 billion in a public offering Thursday — will develop cryptocurrency-related services over the next 12 to 24 months with the digital asset exchange FTX . . .
Why does it matter?
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.
ANOTHER Story About a Tribal Lender Charging CRAZY Interest Rates
A case filed in federal court in New Jersey alleges that tribal lender Bright Lending is engaged in usury and fraud by charging up to 700% for short-term loans.
Two New Jersey residents, Mary Haremza and Jacob Murray, sued Aaniiih Nakoda Finance LLC, which does business as Bright Lending and is owned by the Fort Belknap Indian Community of the Fort Belknap Reservation of Montana, according to the complaint.
The plaintiffs allege the online lender is engaged in usury — the practice of lending money at unreasonable high interest rates — in violation of the Racketeer Influenced and Corrupt Organizations Act, New Jersey’s Consumer Finance Licensing Act and Consumer Fraud Act and state usury laws.
Haremza claims that on Nov. 23, 2020, she applied for a $500 loan online with Bright Lending and was approved almost immediately. According to the complaint, the loan agreement generated for Haremza stated a repayment sum of more than $3,000, with weekly payments of $72.48.
Credit Bureaus Adding Buy Now, Pay Later: What it Means for You
American Banker reports that the major credit bureaus are adding designations for Buy Now, Pay Later (BNPL) products such as AfterPay and Klarna.
Beginning in the next few weeks, Equifax will add a business industry code for BNPL to classify data such as payment history, a move that will make BNPL loans visible on credit reports. Equifax says this will provide clients and scoring partners the ability to decide how to include BNPL payments into their own decision making for new financial services. At the same time, TransUnion is working on its own BNPL credit reporting service.
The American Banker piece notes:
Experian’s website says BNPL payments can impact a consumer’s credit score, and Affirm reports some BNPL loan data to Experian.
Lauren Saunders of the National Consumer Law Center (NCLC) says of these products:
“Buy-now-pay-later products, if affordable and truly free to the consumer, may help consumers manage larger purchases without the long-term debt and high costs of credit cards. But some BNPL products may have deceptive and abusive profit models built on the expectation of late fees from struggling consumers.
While We’re on the Topic - Credit Bureaus Really Suck
On the heels of a report released by the Consumer Financial Protection Bureau (CFPB), advocates at the National Consumer Law Center (NCLC) are calling for major reform to the credit reporting industry.
“The CFPB is to be commended for issuing this report and shining a spotlight on the serious problems of the Big Three credit bureaus in responding to credit reporting disputes,” said Chi Chi Wu, staff attorney with NCLC. We appreciate the leadership of Commissioner Chopra and the efforts of the CFPB staffers who worked on the report. We endorse the CFPB’s conclusion that ‘The [credit bureaus’] responses to these complaints raise serious questions about whether they are unable — or unwilling — to comply with the law.’ And quite troubling is CFPB’s highlighting that the credit bureaus reported relief in response to less than 2% of covered complaints.”
“America’s credit reporting oligopoly has little incentive to treat consumers fairly when their credit reports have errors,” said CFPB Director Rohit Chopra. “Today’s report is further evidence of the serious harms stemming from their faulty financial surveillance business model.”