Payday loans are coming for everyone | Hacker News Reader

Payday loans are coming for everyone

lukeoneil.substack.com

56 pointsmckee164 comments

A bit bizarre reading through the comments on here. It's like stepping back in time.

Many suppliers demand 0 day terms now: You pay with a credit card or wire upfront, often before service or goods are even provided. Certainly for everything under a few thousand dollars, and often even for five digit purchases. Yes, even large companies.

Oh, your super big company wants net 60 (or they'll threaten net 90)? If that even is offered, the vendor almost certainly adds a time and risk premium to the cost (that "early payment discount" is actually the real price. the net 30/60/90 prices are heavily penalized).

Vendors aren't your creditors. Certainly random individual freelancers aren't. The notion that you, the customer, start a relationship with a payment company that demands a fee to get paid is absolutely ludicrous. Despite all of the splitting of hairs, it is far closer to a payday loan than it is factoring (FastFunds/WorkMark or whatever has their relationship with the publisher, not with the freelancer who just wants his cash, much less at the usurious prices).

What a world when even the people of HN are defending these practices.

> Many suppliers demand 0 day terms now: You pay with a credit card or wire upfront, often before service or goods are even provided. Certainly for everything under a few thousand dollars, and often even for five digit purchases. Yes, even large companies.

I'm not necessarily defending it, but it just seems to be how the world works. I've been on this side of things as both a freelancer and as an employee of small companies invoicing bigger ones. Maybe if the product is physical, like semiconductors, things are different?

My experience was with lots of 5-6 digit software engineering work. Sometimes there was up front NRE payment, but negotiating payment milestones were typically part of the sales team. I've never heard of or seen a 0 day B2B contract. It was never my department to question the way the contracts were structured, but it just seemed to be how B2B was done. I'd tell finance whenever I made a deliverable so they could invoice.

A big offender of not paying timely (on NET 30/60) was the government themselves from what I saw. So it's not just like this is something some shady businesses are doing.

At the end of the day, isn't salaried work often NET 30 or NET 15? I've never heard of being paid more often than bi-weekly.

> At the end of the day, isn't salaried work often NET 30 or NET 15? I've never heard of being paid more often than bi-weekly.

Although being paid in arrears (up to 7? days in California, IIRC) is legal, it's uncommon. Otherwise, on payday, the worker is paid for that day, as well as the preceding 13-14. On average, that means only 7.5 days are "on credit".

More importantly, though, it can't be compared to a contractual debt, since payroll is much more heavily regulated by the state. In California, for example, the penalty, even for being late, can be disproportionately severe, and the state has resources to pursue them (plus, PAGA[1] provides an incentive for private pursuit of those penalties otherwise only payable to the state).

This difference is an example of why "gig economy" (the article mentions at least Uber, for example) classification of workers as contractors can be such an important issue.

[1] https://labor.ca.gov/Private_Attorneys_General_Act.htm

Upfront, I normally am not for legislation. However one thing that's been on my mind lately has been the lag between work and getting paid for that work. Even for regular employees. The days of being paid 1x / 2x per month, IMO, stem from when we had to cut a corporate check to pay someone. A check sometimes meant two signatures required. This was massive overhead and thus we wanted to batch them and do them as infrequently as possible.

Today payments are easily automated and extremely inexpensive. I see little reason one couldnt be paid at the end of a work day or even more continuously such as per calendar day or what have you (ie there are ~22 work days per month, but ~30 calendar days) ... I could see a good pro labour legislation being to get paid daily for companies with automatic deposit or over size X.

Things like payday loans wouldnt make as much sense if you've already been paid 14/15ths of your pay up to that point and you're going to get the last 1/15th within 24 hours.

Edit: Something like this: https://www.uber.com/info/instant-pay/ but automated and for everyone.

There is an interesting, well-funded startup tackling this problem: https://www.earnin.com/

I am not affiliated with this company, just like their idea a lot for all the reasons mentioned in your post. Obviously they have to make money and presumably take some cut or added fee for providing the service of getting you paid before your employer does it, but at least they shorten the time between work done and getting paid.

I get paid twice a month and I wouldn't care if I got paid only once a month considering all my bills are monthly or longer. Credit cards, rent, and internet are monthly. Utilities are monthly or biannually. I can't think of any other bill than that.

I agree that for some, once one has enough cash sitting around it just becomes a sea of cash that barely changes order of magnitude.

However, for many of America's working class they are < 1 paycheck from bankruptcy. I speculate that for many of them getting the "liquidity" of getting paid daily would stop some of them from missing payments.

The one piece that I had a hard time understanding, is there is a range of income for the group of people affected. Some make $10 an hour, others make $15, yet they are both in the same boat. If the person making $15 an hour lived like they were making $10 then in 2 units of time they have 1 unit of time of expenses saved (i.e, in 2 months, they have an extra 1 month of their expenses saved).

But then I came to the realization that real life doesn't work that way, even looking at my (lack of) savings through the years. That is because life is full of stress, and throwing money at the causes of stress is sometimes the only way to reduce that stress. For example, having a teenager that has a drug issue, if you don't have the extra money then you deal with it, but if you do have extra you can spend it on therapy which may help thereby reducing stress.

And the various stress items really don't go away until you are bringing in about 70K or so a year -- at that point you can finally afford to pay off various debts, build an emergency fund, drive a reliable car, and live in a slightly better neighborhood.

Adding to your comment, also comparing $10 to $15 is really hard because that could be $10 where rent is $500 or $15 where rent is $2000. Because price levels vary so much nationally we need a way to level those out. It makes little sense to compare people who have fundamentally different purchasing power. Also, IMO, this applies to taxes (why should someone "just making it by" in the bay area, but makes $100k be taxed like someone who pays 50% less for everything they buy in another region of the country)

I'm glad that you're covered. But have you ever driven over to the seedier part of town and seen most of the businesses revolve around money lending? "Money Tree", "Payday Loans", etc.

We're talking about a lucrative industry that exists around extracting money from the poorest people. And most of it has to do with them waiting to be paid for work they've already done.

And most of it has to do with them waiting to be paid for work they've already done.

Is it really though?

If someone is really in this poor of a financial situation, I'd bet that it could actually be worse to receive money day by day. This gives them access to use it prior to when larger bills are typically due: the start or end of the month.

That is, if you get paid on the 31st, you'll have that full paycheck available to pay your loan, mortgage/rent, car, phone service, and so on on that day or within the next few days. Then you have the rest leftover to blow.

Day by day payments involve control and making sure you are setting aside enough.

Have you ever noticed how excited people in this situation are for "payday", since they're able to go buy stuff? Now, every day is payday with the associated temptations.

Have you considered that it's not about when they get paid but how much they get paid, and how much money they are spending each month?

If you get $300 on the 1st or you get $10 a day you'll have the same amount on the 30th. If that amount is less than your monthly expenses you're in trouble and payday loans start to look attractive.

A lot of people in the seedier parts of time are working jobs that don't pay a livable wage, and a lot of people are also spending more than what they should be. Sometimes irresponsibly, sometimes out of necessity (see: the boot theory of economics).

Paying irresponsible people more often will exacerbate their problems.

Paying poor people more often won't make them not poor any more.

Considering the time value of your money-

If you get a $1500 paycheck every 15 days, as opposed to a $3000 paycheck every 30 days, then you earn 15 days of interest on $1500 that you would not otherwise earn. At Ally bank, that could be 1.85% in savings accounts. This two-paycheck cycle would repeat 12 times a year, so for half the year you earn interest you would not otherwise earn, totaling to roughly (compounding negligible) 1500*.0185/2= $14.

If you assumed you could get 9% in the stock market, the time value would be $68.

Depends on the company. I'm paid on the 15th of the month for work done that month, so that works out fine.

That $68 earning is either going to the employee or the employer. If law forces it to go to the employees then the employers could try to hire people for $68 less salary.

> = $14

.. per year. Or $1.16/mo or under .04%. Although that's not literally nothing, it's awfully close. Oh, and that's before income tax.

> If you assumed you could get 9% in the stock market, the time value would be $68.

Although that assumption may be a bit of a stretch, something a typical consumer might be far more likely to encounter (and need not apply income tax adjustments to) is consumer loan payments.

A 20% revolving balance paid 15 days early results in $12.50 monthly, which can pay for a streaming subscription.

I run payroll, and everytime I do it's a potential mistake waiting to be made. We use Gusto, which is about as good as it gets for online / easy payroll, and there are still occasional issues. Payroll doesn't just pay an employee, it also handles proper withholding for each employee with an ever changing system that is tied to a huge swath of federal/state/city tax rules, which includes how often you have to pay the locality, usually based on how big payroll was in that locality. Basically, doing this everyday, having it trickle in, seems like a nightmare. I think for it to work properly the end to end system needs to be reworked, and I don't think the potential benefits outweigh the risk and work required.

"If it hurts, do it more often"

That works when the pain is something you can fix, and the cost of experimenting isn't too high. I'm not sure government bureaucracy meets that description, and experimenting can become very expensive if you screw up and the Eye of Sauron turns upon you and starts auditing.

I love the spirit of this, but there are so many industries where it would be nearly impossible to pay daily or even weekly. The administrative overhead would be huge and costs to customers would go up to accommodate. I'm thinking about my own past experiences, where trying to automate away (the only solution here to more frequent billing + payroll) would be tremendously challenging and industry / company specific.

In code you write, not in real deployments where it can cost you millions.

The cost/benefit doesn't pan out. We're not talking about exercise here, we're talking about regulatory liabilities for any mistakes being very potentially costly.

Preparing city, county, state and national governments for daily automated payments seems like a good first step. That and creating guidance for companies.

> However one thing that's been on my mind lately has been the lag between work and getting paid for that work. Even for regular employees.

Regular employees already benefit from legislation on this point (which often covers both minimum frequency and maximum delay from end of pay period or termination to delivering pay.) [0] So, with regular employees, it's just a matter of tweaking regs to better fit current conditions.

With gig economy contractors, the situation is less simple.

[0] A description of the CA state rules: https://www.dir.ca.gov/dlse/FAQ_Paydays.htm

The opposition you would get there is that makes it sound too much like actually getting paid for time worked, i.e., hourly wages. It'd be much harder then to justify the "salaried and exempt from overtime" dance that most companies do for employees.

This is a great comment. Imagine pulling a 15 hour shift and getting 200 bucks, just like your 8 hour days. It would be infuriating and nobody would put up with it. Yet they do right now. This is another great reason to switch to a daily pay system.

You have it exactly backwards unfortunately. There being such a short feedback between working a long shift and getting a relatively bigger chunk of change would incentivize people to do it more frequently if their employer were willing to pay for it.

> if their employer were willing to pay for it.

Behringer is starting from the supposition the employer wouldnt. And thus it would cause unrest.

Yeah, parent was discussing from the point of view of reality, where employees are not willing to pay for it (the opposite, they'd like to milk their employees even more).

On the other hand, if I am sick with the flu, getting 200 bucks for just sitting at home with chicken noodle soup is a good feeling.

In the US corporate world how often are people "sick with the flu" versus forced to work overtime?

In my experience it's fairly common to not have to work much overtime even on a salary. It's just a few certain types of industries and certain types of positions where this is heavily abused.

I worked in the gaming industry in canada for a brief stint and there was a period where we had mandatory team overtime of 4-5 hours M/W/F for a few weeks.

The only saving grace of going through that was that team productivity tanked so badly that the company ended up losing progress toward the milestone and payed out of that contract. After that experience dev estimates carried more weight and the company was more cautious about tight deadlines.

Payroll isnt quite that simple though. It takes manpower to make sure folks clocked in and out correctly, for instance. There are automatic deductions beyond taxes - everything from health insurance to pensions to work shoes (seriously). Sometimes child support or other legal things. So many complications.

Heck, banks won't even let you have the money immediately when it is on the weekend or a holiday.

There are real costs to processing payroll more often, even though checks are not printed as often.

Until you deal with unions, tax rates across different states and countries, corrections, benefits, inaccurate time recording, etc.... Payroll isn't that easy.

I can see it being a pro-labor perk for those companies or industries that chose to adopt this type of scheme without being forced by legislation. That stated, it overlooks the number of capital-intensive industries and small businesses that simply cannot afford to pay on a more regular basis than every two weeks. In fact, I'd go so far as to say that legislation of this would be well-meaning, but would only serve to harm a lot of small /early-stage businesses.

So are you saying you'll be increasing the frequency of ACH transactions by 14x (e.g. daily vs. biweekly) or 30x ?

There is likely a cost with that, even if the bank allows the frequency change for free. Most banks are starting to provide APIs, but many still charge fees for large volumes of ACH formatted files for example. The costs in making sure things are tied out (ie, all amounts match to the penny) seem pretty high.

Every payroll cycle is difficult because you have things like [benefit|FSA|ESPP] deductions, and the occasional bonus earning or 0-dollar mandatory RSU vesting (to account for taxes paid).

The benefit for a daily payment is pretty low compared to the costs.

>The costs in making sure things are tied out (ie, all amounts match to the penny) seem pretty high.

Could you elaborate on why it seems high? What you're describing is computations on distributed systems, and I'd be surprised if it's computation or communication that is the bottleneck for handling ACH transactions.

Manual effort for handling discrepancies for each payroll run. You might be surprised but lots of companies' payroll processes are not automated to avoid manual processing at some point in the process.

> The benefit for a daily payment is pretty low compared to the costs.

Agreed. I can't imagine having to balance my checking account with a daily transaction. It would be much harder to catch an error or a one-off when you didn't get paid too. Is my mortgage going to start deducting daily too? Both those things seem insane.

Also you are limited to 6 ACH transactions a month to a savings or money market account.

> Also you are limited to 6 ACH transactions a month to a savings or money market account.

You're limited to 6 withdrawals, you can make as many deposits as you want.

This is factoring, not payday loans. As the author investigates, he finds this out as well.

I've done plenty of freelance work and I deeply know the pain of getting paid late, but as others have pointed out, dealing with a larger business results in net 30/60/90 terms, when things are going well. The fee you pay to the intermediary is justified.

Now if the only option to ever get paid was to pay an intermediary a cut of your salary, well then that would be a major issue. But otherwise this is the freelancer paying an intermediary for a) quicker access to funds and b) reducing the (albeit often small) risk of the client not paying.

Net 30/60/90 is a scam, there's no reason companies couldn't pay earlier. That freelancers put up with it just means that they don't have enough market power.

It's a bit of a relic from back when bank transfers only happened via paper, but I wouldn't call it a scam. Megacorps give each other the same terms all the time, so it's more about tradition and inertia than market power.

That being said, when I knew I have been a high-value member of a team as an outside resource, I've negotiated for better terms (net 15, for example).

I have sympathy for people subject to the vagaries of corporate payment settlement terms, but when you agree to net 60 you may not get paid for 60 days. To get paid sooner will cost something.

This isn't really a story to me. Perhaps it could be re-titled "freelancer learns businesses usually pay net-60 (or 30, or 90).

That there are intermediary companies offering cash-flow for a fee isn't exactly new either.

my company forces vendors to net 60, and if they argue with it, they will threaten net 90 and say that is the industry norm and they are being nice at net 60.

Does that work? If it does, you must be at a big company and not dealing with the government. Chasing down invoices seems to be a huge pain for small companies. It seems like many big customers would laugh at the small company and agree to NET 60, then pay you in 95 days.

Basically one needs a sliding rate scale on credit risk.

At the very least one should be charging ~6% more (1.02 ^3) for net 90 terms, along with Credit Card like rates for missed payments. A good rule of thumb in America is if they have lawyers, you need lawyers.

If we agree on net-60 and they actually pay net-60, then everybody is good. The problem is that anything > net-30 tends to be signaling that you'll get your money when we darn feel like it, maybe never. Yes, I understand that the larger the company, the longer the payment terms, but its that risk factor of the unknown that is the squeeze on the little guy. Ironically I was just discussing this with my partner this morning as I seek to collect on a debt of > 365 days... feels like there should be lots of opportunity for disruption around getting paid, as contract law (which should be the cornerstone of civilization) is not really helping me collect with any degree of speed.

Per the article: "Should they not get paid by the client we don’t go after that money."

If the company goes under while you are waiting to be paid, you end up with $0. Someone else is borrowing money, paying you in advance, and eating shit if they collect nothing from it. Not even close to payday lending in analogy..

Yea, that was the value add I saw in the article. I wonder if they could provide that service more modestly and apart from the timing as a pure insurance.

You agree to take a fee on your check in exchange for being paid the amount owed when the employer cuts the check or when your contract dictates you'd be paid by, ignoring bad actors, mistakes, slow processing or bankruptcy. This is also a portion of our legal system that may just need more transparency and government assurances.

This practice has a very bad look, and my heart is with the freelancers. But I also know human psychology is fickle and there is a functionally identical way to pay freelancers that would generate far less ire:

The client quotes the freelancer a due-on-receipt, net-zero-days price and then offers a "no hurry payment" bonus of twenty-five or thirty percent or whatever that comes with net-30/60/90 terms.

If a freelancer doesn't ask about payment terms when negotiating payment with a new client, he or she will quickly learn to do so. You don't need to experience the sting of learning that your client intends to pay you net-120 more than once before you focus like a laser on payment terms and conditions.

When I engage with freelancers or small businesses as vendors, I make a point of making sure the accounting folks know a particular vendor should not be subjected to "cashflow optimization," which I have known AP folks to elevate to an art, a sport, perhaps even a tenet of a fanatical religion.

A couple of related items:

Why Variable Pricing Fails at the Vending Machine: https://www.nytimes.com/2005/06/27/business/why-variable-pri...

Coke’s Segmentation Error: https://pragmaticpricing.com/2010/05/15/cokes-segmentation-e...

Isn't this normal in B2B (of which freelance is kind of a subset)? Normal terms might be net 60, but if you pay in less than 30, there's a discount.

Yes it's completely normal. The author has no idea what accounts receivable looks like at most companies.

One indication that this isn't B2B is the use of WorkMarket instead of dealing with gig workers in a B2B fashion. The stated value-add of WorkMarket is to allow businesses to manage their "freelancers and independent contractors".

So businesses take a cut out of the budget to hand it over to a "management" company to sort out the paperwork, and they require their gig workers to provide liquidity to the client business via net30/60/90 terms.

One has to be blind or stupid to call this a B2B relationship in the sense of two equals dealing with each other.

I hope users of these systems start a class action lawsuit to recoup their payments and that the industry is regulated such that the client is responsible for the fee. So instead of the author getting $650 on their $700, HuffPo should pay $750 for their $700 invoice.

Once that happens, payments will magically be made as quickly as possible. Fast payment processing is a solved problem.

I'm sure their contract stated NET 30/60/90 though. I've done freelance engineering work and that's how it was after I submitted my hours for the month (NET 30 in my case).

Regular employees were paid every 2 weeks, but I was a freelancer. Freelancers also don't get benefits and get hit twice on Social Security. It's what you expect when you are getting paid on a 1099 and not a W-2.

All this will do is make sure freelancers are paid less across the board.

The biggest payday loan company in the UK, Wonga recently collapsed due to fines from the regulator.

https://www.theguardian.com/business/2018/aug/30/wonga-colla...

I am the technical co-founder of a company in the earned wage access space (link in bio). Happy to answer any questions. The main takeaways are:

- We are paid back by the company on payday so the credit risk is on the company not the consumer.

- Many (most?) of our users do not have access to consumer credit and would be classified as underbanked / unbanked. This is a great book for more background: https://www.amazon.com/Unbanking-America-Middle-Class-Surviv...

- We charge a fixed fee per transaction, no interest is accrued or carried.

- Philosophically, every day you work and are unpaid for it, you are selling your employer an interest-free bond of your labor whose term is payday.

I second your book recommendation!

I would add another, which has similar stories about the challenges of managing money when income and costs are volatile, but in developing countries rather than in the US: https://www.amazon.com/Portfolios-Poor-How-Worlds-Live-ebook...

CTO and co-founder of Gusto here. This has actually been on our mind for many years now, and it's a problem we've seen that hurts paycheck to paycheck employees the most. We've recently taken a first step towards rethinking how payroll should be for a modern workforce, and launched a pilot for a new product called Flexible Pay (https://gusto.com/flexible-pay).

Flexible Pay enables employees to cash out unpaid earned wages, without any changes to how payroll runs. Happy to answer any questions about it. Also, if this is a space you're passionate about, we're actively hiring engineers for that team!

That's not a payday loan.

And "for everyone"? Not really.

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