Is San Antonio FloatMe a Safer Alternative to Payday Loans?

“We’ve been under the radar,” FloatMe co-founder and president Joshua Sanchez said. “The funding is validation that we have grown significantly and allows us to expand.”

However, he declined to say how many customers use the app.

FloatMe, with 60 employees and an office in downtown Soledad Street, is part of a wave of online and mobile cash advance companies gaining traction during the coronavirus pandemic. They compete with payday lenders who sell high-interest loans to largely low-wage workers, a disproportionate share of whom are black and Hispanic.

FloatMe’s service is similar to financial technology, or fintech, offerings from companies such as Moneylion, Earnin and Dave.

Like its biggest rivals, FloatMe says it offers customers payday cash advances, not loans.

Customers pay a monthly fee of $1.99 and can request small advances – no more than $50 – which they repay when their next paychecks hit their bank accounts.

The startup’s terms of service state that users must be US citizens at least 18 years old and have a cell phone and email address. To create an account, customers authorize the company to access their bank account balance and transaction history.

They must also prove that they have received at least $200 in electronic payroll deposits three times before they can apply for advances.

Once approved, users can receive their advances through an automated transfer from the clearing house to their bank accounts in one to three business days. Or they can pay $4 for an “instant” money deposit within eight hours.

Fees for faster access to cash advances have caught the attention of industry watchdogs. Many workers who apply for cash advances are in financial straits and need money fast.

“This type of fee would be voluntary, but really adds up for consumers,” said Yasmin Farahi, senior policy adviser at the Center for Responsible Lending, a North Carolina-based nonprofit policy and research group.

FloatMe users can also receive offers from third-party companies for money management services or products — if they choose, according to the startup.

According to the terms of service: “In all cases, you will need to register to receive these offers from partners, and FloatMe may receive compensation from these partners for referring you to them. FloatMe is not responsible for the products and services offered by these partners.

Payday debt traps

The federal Consumer Financial Protection Bureau describes a payday loan as “a short-term, high-cost loan, typically $500 or less, that is usually due on your next paycheck.” Loans are available in storefronts and online.

If borrowers do not repay their loans on time or at all, lenders can withdraw money from their bank accounts, sometimes resulting in overdraft fees. Payday lenders also sometimes send collection agencies after delinquent borrowers.

Payday loans have long been a big business in Texas.

The Center for Responsible Lending analyzed average annual percentage rates, or APRs, for a $300 loan with 14-day repayment periods in each state. Data shows Texans can pay up to 664% APR — the highest in the nation — because the state has no interest rate caps to protect borrowers.

“Payday loans are marketed as a quick financial fix, but they’re actually a long-term debt trap,” Farahi said. “People will take out a loan thinking it’s a one-time loan to deal with a short-term crisis. But with all the fees and costs, they end up having to take out another loan and another loan.

Like his peers, Sanchez says FloatMe is not a payday lender.

“FloatMe is all about transparency,” he said. “We charge members $1.99 per month to access our personal finance management tools, overdraft alerts and other budget management features. Members can access the floats without having to pay the $1.99. There is no credit check. There is no interest and no hidden fees.

“We do not collect or store sensitive information (personal information),” Sanchez said. “We work with a third party to simply connect a member’s bank account. We do not sell any user data.

The company’s website says it uses Plaid, a California-based financial services company, to connect to customers’ bank accounts.

Debt trap

Sanchez said he had his own bad experience with a payday lender.

Five years ago, he was driving in San Antonio when a VIA Metropolitan Transit bus veered into his lane and rammed his vehicle.

The Incarnate World University graduate had car insurance but couldn’t wait for payment to fix his car – he needed it to get to work. At the time, he was among the 67% of millennials without a credit card. So he dipped into his savings to pay for repairs to the vehicle, leaving him short of cash before his next paycheck.

He didn’t want to ask his mother for money, so he turned to a payday lender for a $200 loan – and quickly fell behind on his payments.

“I have to understand that paying on time is important,” he said. “The way lenders generate their income is by betting that people can’t prepay and get into a habitual cycle of having to pay interest. The sad thing is that the majority of people cannot afford a sudden recovery.

Later that year, Sanchez pitched the idea for FloatMe during a startup challenge at Geekdom, a coworking space in downtown San Antonio, and won $13,000.

FloatMe’s terms of service say it doesn’t charge late fees or penalties, and it won’t go to a collection agency to track down customers for payment.

“If a member doesn’t repay a float, we don’t seek recourse,” Sanchez added. “Our only response is not to allow the member to take another float.”

Still, consumer advocates remain wary of cash advance companies because they aren’t regulated like payday lenders.

“A lot of them try to say they’re not loans, but we think they’re loans and should be regulated by consumer protection laws and state loan laws.” , Farahi said. “Obviously in Texas these laws aren’t strict on user caps, but we’re concerned that they’re trying to get exclusions from state and federal lending laws saying that it it’s not about loans. And really, a lot of them are payday loans in some other form.

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