Cash Advance Apps Are Now Asking For Tips, but Should You Pay?
Would you be willing to tip your bank for letting you withdraw your money from the ATM? That is exactly what many cash advance apps are asking for. The cash advance apps promise to charge you no fees up to $200. However, they now ask for a tip if you value their services. It is up to the borrowers to decide if the cash advance app deserves a tip. The app says that this model is giving the users the flexibility to pay when they can afford it instead of adding a mandatory fee every time. However, according to consumers, the tip request is not a transparent way to disclose what they view as interest on a loan.
How does it work?
Typically, a user opens the app and requests for an advance. While the qualification criteria vary, most apps review the history from a connected bank account and approve it. Once it is approved, the app displays the repayment date, typically the user’s next payday, and then requests a tip with the repayment.
Cash Advance says that the borrowers can decide whether to pay the tip or not. Sharmaine Rouse, who uses the popular app EarnIn said that she ordered an optional tip over the mandatory fees. "I think the tipping option is a little better than them forcing you to pay a fee because, at the end of the day, it’s still your own choice; you can put zero if you want to," she says.
The company's CEO Ram Palaniappan says that the tipping feature forces the company to provide services and products that are worthy. “The consumer can choose what to pay, and that keeps the company focused on keeping the consumer happy,” he says.
A study by the California Department of Financial Protection and Innovation found that out of 5.8 million transactions across three tip-based apps in 2021, 70% of transactions showed that users added tips. However, according to Lauren Saunders, this could be because of the way the companies ask for tips. Some apps show a recommended percentage, while others include a message about the tip.
Some companies also donate part of their tips. For instance, Dave, a cash advance app says that part of their proceeds help provide meals to families through a partnership with Feeding America. On the app's tipping screen, there is an illustration of a little girl. When the customer tips, she's shown smiling and surrounded by food, and if the customer does not tip, she is replaced by an empty plate, via Saipan Tribune.
The choice could be exhausting
As per a study by the Pew Research Center, 92% of adults say that they frequently tip for the service and more than 70% say they tip for services such as haircuts as well as food delivery. However, with tips on Cash Advance apps, it's not clear where exactly it goes.
"People may think that they have to tip to get the loan; they may think they won’t be able to borrow in the future if they don’t tip enough," says Lauren Saunders, director of the National Consumer Law Center. The apps play on the psychology of 'what will happen if I don’t tip?'
Before you tip, you should understand why you are tipping. It's high time that one adheres to a person's tipping philosophy instead of feeling pressurized to tip. "My best advice would be to use your discretion, but at the same time, don’t feel obligated to tip," she says. "When you order food or something, I think that those tips are important, but with an app like this, I don’t think it’s important because they’re making their money regardless."