Download the Dave app on your smartphone, as millions of people already have, and you’ll be greeted by an anthropomorphic bear wearing thick-rimmed glasses and holding a pawful of cash.
The friendly, upright ursid wants to help you get your finances on track. To do so, the digital financial services app will let you take out a cash advance of up to $250 with no interest. Asterisk. You’ll avoid overdraft fees. Asterisk. And get paid up to two days sooner. Asterisk.
Dave, founded in 2017 and backed by celebrity entrepreneur Mark Cuban, is expected to go public this quarter. It’s one of several fintech startups that offer “interest-free” cash advances, though the companies do make money through a combination of fees, tips or both, hence all the asterisks. The financial apps Earnin and Brigit work similarly, sans the animal mascots. The companies say they’re ushering in the end of predatory payday loans and overdraft fees, and they’ve been gaining popularity throughout the pandemic as cash-strapped users seek out fast funds.
Cash-Advance Apps Court Users With Cute Mascots and Fast Payments – but Beware of the High Costs
However, consumer experts warn their fees are just as bad as – if not worse than – traditional payday loan APRs, with rates that can easily top 300%. And, they say, the apps can actually trigger overdraft fees. Policymakers are caught in the middle, mulling over how exactly to regulate them. They’re taking a hands-off approach – at least for now.
Dave’s cash-advance service is just one of the app’s many financial features. The app itself is available for free. But the cash advance portion requires a membership fee of $1 per month, which the company says goes toward linking your bank account.
Once you take out a cash advance, the app prompts you to leave a tip, saying that Dave donates tip money to feed families in need. The recommended tipping amounts default to percentages – 5%, 10% or 15%. (“Tips are completely voluntary,” says Dave spokesperson Danny O’Keefe.)
Yet the techniques Dave and similar companies use to present their voluntary-tipping features are also raising red flags with consumer advocates.
“Some of these applications use some behavioral marketing to incentivize people to pay more,” says Charla Rios, a small-dollar loan researcher at the Center for Responsible Lending. “The more you tip, the happier the cartoon bear is, and that kind of thing.”
With Dave, Iowa check advance near me you can set custom tipping amounts on a scale of 0% to 25% in the settings menu, except the percentages in this menu are now referred to as “healthy meals.” As you increase your tip, you’ll see a young animated girl in a bear shirt grow excited as she’s surrounded by fruit, veggies and bread. Move the tip all the way to zero, and all you’ll see is an empty plate.
O’Keefe confirmed that a portion of tips – not the whole sum – goes to Dave’s non-profit partner Feeding America. The company has provided about 31 million meals through the partnership and made more than $5 million in total charitable contributions, he says.
In Earnin’s case, there’s no monthly membership fee. If you take out a cash advance (of up to $500), the app prompts you to “pay it forward” by associating its tips with helping other Earnin users, who are represented by cutesy avatars of ninjas and astronauts. A $5 tip will help one user, the app says. A $10 tip will help two users, and so on.
It’s possible to skirt tipping altogether, but only if you know to tap “custom tip” and manually change the tipping dial to zero. According to the New York Post, not tipping previously had consequences: Earnin used to limit the amount of cash advances to New York users who did not tip. The company reportedly halted the “pay-to-play” practice in New York in 2019 under regulatory pressure.