A study by consumer advocates said payday loans delivered over the phone have about the same effect as those delivered through storefronts: Leading consumers into a cycle of steep and rising financial costs.
The Center for Responsible Lending (CRL) of Durham, N.C., analyzed consumer use of five direct-to-consumer payday lending apps over the course of 12 months, and found consumers quickly stacked new loans on top of old ones, taking on escalating financial costs. The report, “Escalating Debt: The Real Impact of Payday Loan Apps Sold as Earned Wage Advances (EWA),” was released Sept. 22.
CRL is the policy arm of the Durham, N.C., nonprofit group operating two credit unions: Self-Help Credit Union ($2.1 billion in assets, 105,323 members as of March 31) and Self-Help Federal Credit Union ($2.3 billion, 130,040 members).
Researchers and report authors Chris Bamona and Lucia Constantine analyzed anonymized transaction data from more than 5,000 low- to moderate-income consumers. Each had used at least one of five payday loan apps (Brigit, Cleo, Dave, EarnIn and FloatMe) between January 2021 and May 2025.
“While these companies claim their loans help workers cover emergencies like medical bills or car repairs, the evidence demonstrates that these loans are frequently used to cover everyday expenses like food or housing,” the authors wrote. “Rather than providing relief, these products increase the financial precarity workers are already experiencing by trapping them in a cycle of debt and reborrowing.”
The CRL ressearchers pooled the consumer data for those with a full 12 months of borrowing history to be able to find patterns in borrowing frequency and overdraft charges.
They found 16% of borrowers had stacked on a second payday loan within one month of taking out their first payday loan. The percentage grew to 38% within four months and 42% within 12 months.
More loans meant higher financial costs. The APR on loans repaid within seven to 14 days was 383%, almost as high as the 391% APR on a typical storefront payday loan.
And with higher financial burdens, overdrafts increased. The share of app users experiencing at least one overdraft rose from 9.7% in the three months before taking out the first payday loan to 14.1% in the three months after.
Costs for loans and overdraft fees over 12 months ranged from $66 for light users to $421 for heavy users.
“The predatory design of payday loan apps drives financial harm for many workers,” the researchers wrote.
“Through misleading marketing and fee structures that encourage frequent use, these companies push workers to take out expensive loans and to do so repeatedly,” they wrote. “These business models are structured to maximize the number of transactions and the fees extracted, depleting workers’ paychecks, increasing the risk of overdraft, and compromising workers’ financial well-being.”
Contact Jim DuPlessis at JDuPlessis@cutimes.com.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.