Getting Your Wages, Before Payday

Originally Posted on The New York Times at: Getting Your Wages, Before Payday
By ANN CARRNS MAY 22, 2014

Last fall, Stephen Prentice found himself short on money for rent after his girlfriend moved out. He was wary of using a payday lender, having incurred big fees using one previously. Instead, he said, he used a new service called Activehours to get an advance on his biweekly paycheck to help tide him over.

Big banks, under pressure from regulators, are phasing out so-called deposit advances, which were criticized by consumer advocates as being similar to payday loans — small dollar, high-interest loans, which can trap users in a cycle of high fees and debt. But other providers are emerging to meet demand from consumers who want or need access to their wages between regular paychecks.

Jennifer Tescher, chief executive of the nonprofit Center for Financial Services Innovation, said the new options were “intriguing” because the center’s research shows that income volatility is a big concern for many Americans. The typical biweekly pay cycle can present cash flow problems when bills become due before the next payday. “You’ve earned the money,” she said, “but you just haven’t been paid yet.”

One company, FlexWage, promotes itself as an alternative to high-cost payday loans. It works through employers and offers an option called WageBank to give workers a portion of their accrued wages on a payroll card. (Employees don’t need a traditional bank account to use the system.) For a flat fee — usually $3 — you can obtain the pay for hours you have worked; the funds are deducted from your next regular paycheck. Your employer must sign up with FlexWage to offer the service, which employees can connect with online or through a smartphone app. Typically, you can retrieve as much as 70 to 80 percent of your accrued wages (after accounting for taxes and other payroll deductions), which are transferred to your payroll card, said Frank Dombroski, FlexWage’s founder. About 5,000 workers at 140 employers are using the system, he said.