A Loan is a Loan, Even in Fintech

When our new marketing team asked me to describe what FlexWage OnDemand Pay* does, I told them “It’s like Earnin’, but for real.”

Those aren’t just competitive sour grapes.  I was trained as a banker and broker dealer back in the day and so was our founder and CEO, Frank Dombroski. In that world, you wouldn’t give an individual a loan contractually requiring repayment upon receipt of their paycheck, and then run an ad saying it’s “Not a Loan.”

You also wouldn’t give a loan to an individual without disclosing in a very specific way the amount of interest cost they are paying.  The mortgage market taught us why APR disclosure requirements are important.  The idea that Earnin’ users pay an “optional tip” to “help the next user” was … ummm … problematic from the get-go. Even if, right now, there is no charge, no interest on the loan, surely there will be someday when the capital runs low.  

What else could go wrong? Users report that the Earnin’ repayment will create an overdraft in their account if there are insufficient funds. Overdraft fees per occurrence average $53, which is more than the average overdraft amount, at $47. Users give Earnin’ not only their bank account and payroll data, but also access to GPS to confirm if they have actually gone to work as a proxy for knowing if they’ve earned the expected wages. Users say the GPS is not always right, not surprisingly. Besides, that’s a lot of sensitive data being held in one place that’s not a federally regulated bank or broker dealer.

The problem with a lot of fintech companies is not lack of imagination, it’s lack of expertise with our nation’s laws and regulations. Earnin’s practices are now being looked at in New York and in California.

This is reminiscent of Robinhood’s announcement that it was adding “checking accounts” for all of its users. That would have been powerful.  However, in a matter of days, Robinhood withdrew its announcement due to the fact that it had neither SEC nor FDIC input into the product design and delivery.

Don’t get me wrong. We totally appreciate the exuberance and the attempts at disruption.  I especially appreciate how Earnin’, as one of the newest fintech unicorns, has invested a lot of its considerable capital in bringing awareness to the need for employees to have more control over when they access their wages.

It’s been our mission for years but with an important twist: We work with employers to give employees access to their actual earned wages, in a way that does not create a borrowing risk for the employer or employee. Our work with our clients and partners has the wonderful benefit of helping the employee avoid borrowing for immediate cash needs.

But we also believe that on demand access to wages could help everyone, even if that benefit is not available from their current employer. But if and when we do that, we are going to call the loan, a loan.

* FlexWage OnDemand Pay is a patented, non-loan system that allows employers to offer early access to already earned wages.