Source: Fortune
Summary
A report by the Center for Responsible Lending found that 96% of direct-to-consumer payday loan apps charge fees or tips, averaging $208 per year. Over 10 million Americans use earned wage access tools, often for essentials like food and rent. These apps, while free to use, can lead to high APRs due to fees. A 2024 CFPB report noted a 90% increase in transaction volume for earned wage access. The CFPB attempted to regulate fees but withdrew the proposal in 2025. Experts warn that loan stacking and rising fees could harm both consumers and retailers.
Our Reading
The numbers tell one story.
Apps charge fees that add up to high APRs, even without interest.
Consumers use these tools for essentials, but the costs are rising.
Regulators tried to act but backed down.
What seems like a convenience is actually a hidden debt trap.
Author: Evan Null
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.
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.
Experts warn that the rise of these apps is not just a consumer issue, but a broader economic concern that affects everyone.
