Two U.S. states crack down on cash apps that trap women in debt

Last May, we reported on the Earned Wage Access industry, a $9.5 billion, fast-growing sector that was almost entirely unregulated. The story showed how paycheck apps, including those backed by billionaire investor Mark Cuban, NBA star Kevin Durant and actor Ashton Kutcher, offer high cost cash advances, which like payday loans, are disproportionately used by women of color. 

We found that the young women who use the apps often end up trapped in a cycle of debt — with promises of quick cash for groceries, rent and children’s birthday parties masking effective annual interest rates of over 300%. 

Since then two states, Maryland and Connecticut, have stepped in to regulate these apps, requiring most smartphone-based cash advances to follow their states’ interest rate limits — 36% for Connecticut, 33% for Maryland for small loans — with tips and instant access fees included.

But in California, where we focused our reporting, regulators retreated. After ferocious industry opposition to initial draft regulations, the state Department of Financial Protection and Financial Innovation posted revised rules in November that require the apps to register as lenders with the state, but exempted them from interest and fee caps.

Suzanne Martindale, the state’s senior deputy commissioner for consumer protection, framed the rules as a step forward that “could have broader implications nationally” and argued that requiring the app companies to register as lenders was “a first step in bringing them into our formal oversight,” she said in an email.

But the new rules will not offer California consumers immediate protections. The apps “can continue to charge consumers whatever they want,” said Andrew Kushner, senior policy counsel for the Center for Responsible Lending.

A recent consumer survey from the advocacy group shows just how dependent users have become on these apps — with more than a third of customers of Dave, the company backed by Mark Cuban, seeking cash advances at least three times a week. At Brigit, the company backed by Durant and Kutcher, that number was closer to 40%. A representative from Dave declined to comment. A spokesperson from Brigit did not respond to The Fuller Project’s inquiry.