Payday Loans without Overdrafts: is it Possible and Safe?

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Problems with high interest rates on loans taken online have been discussed for more than a year. Sometimes they reach 300%, or even 1000% per annum. However recently, applications have appeared on the market that allow to take direct lender payday loans without overdraft and get money in a few hours. These are Dave, Ernin, Bright and others. Some of them are financed by such a famous enterpreneur as Mark Cuban.

Such applications are easy to download to a phone and get a loan. Most applications position themselves as free, so there is no need to pay money to download them. However, to get a loan in the Dave app, it is needed to pay a commission of $ 1. According to the software, this money is needed to link the bank account.

Obviously, having received such favorable conditions, during the pandemic, Americans rushed to take loans through applications like Dave. Almost no one thought about the safety of using a completely new service in the field of lending.

Meanwhile, many politicians and public figures are worried about whether these applications are safe and if they do not take overdrafts, like other credit organizations, then how do they earn money?

Who and how do Dave, Bright and Ernin apps make money on?

First of all, it should be noted that applications are engaged not only in lending activities, but also in servicing taxi drivers, deliveries and other services. Each time a loan is taken in the Dave and Ernin application, an offer is displayed on the phone screen to leave donations for low-income people from 0 to 25%.

Initially, the cursor is on a specific amount, not on the number zero. If you do not carefully study the device and immediately click further in the application, then it will withdraw a certain amount from the money issued on credit.

In addition, even the application owners themselves admit that not all the money donated to charity goes to the poor. Yes, Dave and Ernin organize free meals for those in need, but they keep most of the profits for themselves.

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At the same time, the Bright app is not free. In order to be able to borrow an amount of $ 250, a user needs to pay a monthly instalment of about $ 10. It doesn’t matter if the user takes out a loan this month through the app or not. It is needed to pay every month for direct lender payday loans.

These are only those sources of income that are known to the general public. The true turnover of funds from the owners of these applications has yet to be found out.

What Problems can arise

Although applications that issue direct lender payday loans with seemingly no interest have become very popular lately, there are more and more concerned professionals. Firstly, the actions of such applications are not regulated by law, since this is a new phenomenon.

Bills have yet to be drafted to limit the arbitrariness of such lending applications. After all, since the user himself decides whether to pay the deposit or not in the Dave and Ernin applications, the legislation does not allow them to be classified as credit institutions.

The lack of clear regulation allowed Ernin in its early stages of operation to restrict those of its users who refused to donate to the poor fund. And only after a tough reaction from regulatory authorities, Ernin canceled such actions in relation to users.

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Consumers cannot hope for legal protection like the one they get when they get loans from banks and large financial institutions. There were several precedents when firms that issued loans under the new rules were not accountable to federal control bodies.

For example, the PayActive organization was not called credit, as it issued direct lender payday loans, directly interacting with the employers of users. In practice, such decisions mean little protection of consumers from the point of view of the law.

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Paschal Okafor is NaijaTechGuide Team Lead. The article Payday Loans without Overdrafts: is it Possible and Safe? was written by NaijaTechGuide Team. The article was last modified: January 1st, 2022
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