In the arena of moneylending, there is perhaps no more controversial topic than the so-called “payday loan” industry. Payday loan companies have long been a center of controversy. Generally, claims against the industry refer to the rate of interest charged as exorbitant (“usurious”). The payday loan industry presents an easy target, charging an average annual interest rate of 404%.
Outrageous, you say? Perhaps, but these are the shortest of short-term loans, often lasting only a few days, or even less. The lender has a difficult time earning a few dollars to cover the cost of loan processing, along with inherent lending risk. The industry has long been under attack, and now EWA (Earned Wage Access) is attracting a large segment of former payday loan customers.
EWA is a system being offered by a few noteworthy employers, including Target, McDonalds, and Walmart. Employees in the EWA program get access to their wages for already-worked hours at the end of a shift. This access has been called “daily pay” or “on-demand pay,” and has been very well received.
Conceptually, EWA can be used to prevent employees from incurring late fees, overdraft fees, and other excess costs, due to a lack of timely cash on hand. Many employees whose jobs include EWA have expressed a great deal of satisfaction with the system, reporting that EWA alleviates their need for (some say usurious) payday loans. EWA appears to be here to stay.
Younger workers in today’s environment tend to be serial job changers. Employers understand the high cost of employee turnover and have stumbled on EWA as a retention tool. According to EWA provider DailyPay, companies offering their system have experienced a 24% increase in longevity of employment. Hiring and training costs are lessened proportionately as turnover is reduced.
Among employees now using EWA report, 1 in 5 have used payday loans, and 6 in 10 have been late for bill payments. As a direct result of EWA, about 9 in 10 report having reduced or eliminated payday loans, and nearly as many have had less trouble paying bills on time.
How big will EWA become? Here’s a clue. Wal-Mart recently purchased Even, a provider of EWA that has served Wal-Mart for many years. Billboard advertising often includes EWA as a benefit for hourly employees. While EWA may not be the primary incentive for workers to choose a specific company, it appears to be an increasingly important tiebreaker.
While we can see opportunities for abuse, freedom of choice is well served with increased flexibility offered by EWA.
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