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As Americans continue to face persistent affordability concerns, they’re turning to loan tools that are actually leaving them even more strapped for cash.
Those tools include apps that allow individuals to receive cash in between paychecks and are costing them hundreds of dollars each year in fees, according to a recent report. An analysis by the Center for Responsible Lending’s Julian Bond Institute of bank transactions from 10,000 consumers, found 96% of direct-to-consumer versions of payday loans included fees or “tips,” which amounted to nearly $208 per year on average, or about $17 per month.
As of 2024, more than 10 million Americans used some form of “earned wage access” or “on-demand pay” tools, which give workers access to a portion of their earnings prior to their payday, allowing them to bridge gaps between paychecks. These tools are primarily used by those who make less than $50,000 according to a 2022 Government Accountability Office report, with food and rent being the key reasons people use the service, one case study of food and restaurant workers found.
While these apps are free to use and don’t require credit checks or charge interest, they can charge fees for money to be transferred quickly, membership fees, and have a “tip” option, driving up costs to an Annual Percentage Rate (APR) of 232% for an average loan—nearly the equivalent loan rate as what traditional payday lenders offer, according to the Julian Bond report.
A 2024 Consumer Financial Protection Bureau (CFPB) report found a 90% increase in transaction volume for earned wage access from 2021 to 2022, and Tom Feltner, associate director of consumer policy at Americans for Financial Reform Education Fund, told Fortune the use of payday loan apps has “certainly increased” amid Americans’ ongoing affordability concerns.
The rise of loans at Americans’ fingertips
Short-term financing has skyrocketed in popularity since the pandemic, when the emergence of these on-demand pay tools, as well as buy-now, pay-later apps aligned with increases in inflation. Between 2018 and 2020, transaction volume for on-demand pay apps tripled from $3.2 billion to $9.5 billion, according to Datos Insights. LendingTree found that nearly one-third of Americans have used buy-now, pay-later to finance necessities like groceries, double the 14% who used the service two years ago.
“There is a certain fear” among economists about the rise of financing apps, Panos Kouvelis, a professor of supply chain, operations, and technology at the Olin Business School at Washington University in St. Louis, told Fortune last month. “There are some people that are living at the edge that are really overborrowing, and nobody knows about it.”
Part of the increased prevalence of these apps is simply because they are more accessible, Feltner said.
“Apps are leveraging new technology to deliver an old product because we’ve seen payday loans on the market for, in many states, well over 40 years,” he said. “But never have they been as readily accessible as they are now.”
The primary danger of these apps is not the fees associated with using just one, Feltner noted. Transactions, while growing in frequency, are often small. But while just a couple hundred dollars in advance payday-related fees seems small, the ubiquity of loan apps for many different purposes, including buy now, pay later, means consumers are increasingly engaging in loan stacking, or the dangerous habit of outsourcing more and more short-term financing to apps.
This use not only piles on fees, but also increases the risks of missed payments and delinquency, Feltner warned. Because many of these apps do not require traditional credit checks, users have fewer guardrails and forms of accountability for how many loans they are taking out. In 2025, CFPB found more than 60% of buy now, pay later users had simultaneous loans, and most consumers receiving these loans had lower or subprime credit scores.
“In many ways it is adding new debt that’s invisible to other creditors and is ultimately, I think, driving both the variety of debt that people are in, as well the total amount,” Feltner said. “I think that’s why this is so concerning.”
Efforts to crack down on earned wage access apps have recently fallen short. In 2024, the CFPB proposed a rule that would require the disclosure of tips and fees as finance charges as an APR, or the total yearly cost of borrowing money. In December 2025, the CFPB under Office of Management and Budget Director Russell Vought withdrew the proposal, ruling that fees and voluntary tips were not finance charges.
Why financing for some may cost all Americans more
The number of Americans using direct-to-consumer financial tools has economists worrying beyond individual financial impacts to broader economic ripples. A recent study led by Kouvelis designed an economic model that included consumers’ willingness and ability to use buy now pay later (BNPL), as well as retailers’ expected profits, and found that retailers increased sticker prices to offset the merchant fees these apps charged them, “which basically means that all of us are going to pay for these practices that are out there,” Kouvelis said.
This problem is directly related to the types of purchases Americans are taking out short-term loans for. BNPL was designed for discretionary purchases like furniture and entertainment consoles, which usually have higher margins. Groceries and other basic goods, however, have much thinner margins, making it harder for retailers to absorb fees associated with allowing BNPL transactions. As a result, they’re pressured to either increase prices or slash inventory and give consumers fewer choices.
“Why does it really make sense for the retailer?” Kouvelis asked. “Unless they are hoping that as a result you are buying a much larger basket of goods and therefore they are making money on other products.”
This story was originally featured on Fortune.com
