Are Cash Advance Apps Safe?

You may be thinking about downloading a cash advance app to borrow money between paychecks.  With so many news stories about security breaches, you may wonder,

Do cash advance apps keep my personal information safe from hackers and cybercriminals?

Quick answer:  Many cash advance apps are relatively safe but still carry an element of risk of a data breach, as with any business that uses your data online.  Cash advance apps collect especially sensitive information, like bank account numbers, salary, pay dates, employer, and spending data.  Choose an app that prioritizes security, based on your review of its privacy policy, online reviews, and reputation. Even safer: set up an emergency fund.

The Technology Behind Cash Advance Apps

When you sign up with a cash advance app, you provide information about your bank account that allows the app and your bank to connect.

The actual connection is often made through third-party software (data aggregator) that works in the background to give the app the banking details it needs to do its job.

Cash advance apps and third-party services aren’t required to store and protect financial data according to the same strict rules that banks must follow. Still, apps and third parties often voluntarily provide bank-level encryption and storage of data.

Each Cash Advance App Is Unique

Currently, you can choose from at least 25 different cash advance apps.  Each is a separate business with its own terms, policies, and data security measures. 

Because each app is unique, if you want the details about an app’s security measures, you’ll have to do a little investigating on its official web page or app store page. 

You’ll usually find out about an app’s security measures in its Privacy Policy.

An app must contain a Privacy Policy if it collects personal information from residents of California or the European Economic Area or if it markets to certain groups of people. Even if not legally required, a privacy policy is necessary to offer an app on certain platforms such as Google and the Apple App Store.

Issues That Affect Privacy and Security of Cash Advance Apps

When evaluating the safety and privacy of your data on an app, look at the following items:

• Two-step authentication.  See if the app uses this feature (also called two-step verification).  It’s a proven way to stop cybercrime.  This process uses one or more extra steps to verify your identity.  So besides entering your password, you may be asked to answer a secret question, provide a fingerprint, or retrieve a pin number from your smartphone.
• Updated versions.  Use only official apps downloaded from the Apple or Google Store, and use the latest version of the app. Companies constantly update their apps as they enhance security methods. If an update message pops up, don’t put off getting the latest security updates.
• Company reputation.  At a minimum, check out the app’s reviews on sites like the Apple App Store, Google Play App Store, Trustpilot, and the Better Business Bureau.
• Information sharing.  Find out whether and how your information is shared with other parties.  It’s common for apps to use third-party technology companies to enhance security or user experience, but when apps share your information with these third parties, it does increase your exposure to a data breach.

Concerns About the Safety of Cash Advance Apps

Though cash advance apps adhere to many of the same security standards used by banks, there are still concerns:

Security Breaches

No app can promise your data is 100% safe.  Cash advance apps, like others, are subject to leaks.

In June 2020, a breach happened at a former third-party partner for the Dave cash advance app. The breach affected all of Dave’s users, a total of 7.5 million people.

Stolen data included each user’s full name, birth date, home address, email address, phone number, encrypted social security number, and hashed password.

The information was first offered at auction but was then made freely available to the public to download from a hacking forum.

Users have sued Dave, alleging that Dave didn’t have adequate security measures in place and waited too long (about a month) to inform them of the breach.

So far, the incident involving the Dave app is the only time a security breach has affected a cash advance app.

Vague Description of Security Features

When cash advance apps describe their security features, they tend to use descriptions like “world class,” “bank level,” or “industry leading.”

While these expressions can be reassuring, they’re not specific. For example, does the app use a 256-bit encryption system?

With detailed information, you can do a one-to-one comparison across platforms and decide which app offers the level of protection you’re most comfortable with.

App companies may avoid technical descriptions because they fear users will consider them boring or unnecessary. But if an app is unwilling to tell you how your money and personal data will be protected, maybe it’s better to take your business to an app with more transparency.

Your Recourse in the Event of a Loss

Another concern is the lack of protection for your money if a breach happens and you suffer a loss.  If your data is breached as a credit card user, you can dispute any charges and be reimbursed.  But if you lose funds through an app, the funds most likely won’t be recoverable. 

Some cash advance apps address users’ concerns over a loss by offering free insurance. To name just a few businesses that have taken this approach, the Cleo app pledges $250,000 for losses “attributable to sign-up and use of Cleo,” and the Brigit app offers up to $1 million to repair identity theft. Because apps’ offerings differ, it’s important to see if an app you’re considering offers insurance.

Also related to your options in the event of a loss is your right to sue. Some apps, such as Dave, contain an arbitration clause in its Terms of Use which takes away your right to have a jury trial or join a class action suit against Dave. In the case of the 2020 data breach of the Dave app, the management decided to pay victims to avoid further publicity.

Overdraft Fees Caused by the App

An app isn’t safe to use if it promises one thing and delivers another.

One of the advantages of cash advance apps is supposed to be their ability to prevent bank overdraft charges by making sure you have enough money in your account to pay for all your purchases. 

Imagine the surprise of some users of the Earnin app, then, upon hearing their bank accounts were overdrawn because of withdrawals by Earnin. 

Earnin deducted money from users’ bank accounts to repay cash advances and in doing so, caused the users to incur bank overdraft fees.  This happened despite the app’s marketing claims that the app helps people avoid overdraft fees. 

Earnin was sued for deceptive marketing practices.

Serious Financial Consequences

A final concern is that inappropriate use of the app can lead to serious financial consequences for users.

Some people’s expenses are higher than their income, so naturally, there’s a shortfall every month.  If such a person borrows from a cash advance app, they can’t hope to repay the loan without needing to borrow at least the same amount to meet expenses for the next pay period.  This pattern of repeated borrowing is called a debt trap, and it can damage financial, physical, mental, and social well-being.  

Other people repeatedly turn to cash advance apps because they either can’t or don’t want to wait until their next paycheck to buy something.  This style of borrowing leads to recurring fees that can add up at an exorbitant interest rate. 

Even though some apps’ business model is to offer free or low-cost cash advances with voluntary tipping, companies apply pressure to tip and charge fees for upgrades in service.  The true cost of getting a cash advance can be as high as that of the infamous predatory payday loan.

Key Takeaways

Strictly speaking, cash advance apps are relatively safe. There’s always a risk of a data leak from any business that stores your information online.  Many cash advance apps use the same level of monitoring and encryption as banks. So far, only one breach of a major cash advance app has happened.

In a broader sense, “safety” goes beyond data breaches. It also includes an app’s transparency about its the specific technology and practices it uses to keep users’ finances and information safe–not just a vague assurance. Detailed information about data protection would allow users to compare cash advance apps in terms of safety.

Safety also involves a willingness to make users whole again (without lengthy lawsuits or unfair arbitration) if a data breach caused by the app or a third party results in any harm to the user.

Finally, safety implies users are free from being manipulated by deceptive business practices. No person should be subjected to misleading information in the midst of a financial struggle.

A few alternatives to cash advance apps are available. Possibilities include selling unneeded items, borrowing from family members, getting a side hustle, reducing expenses, and getting a loan through a Community Development Financial Institution (see Resources).

Maybe the best solution is to have an emergency fund. I understand if you’re like millions of people and live paycheck to paycheck, it’s hard to save anything at all. But if you can put even a small amount away on a regular basis, you’ll have the freedom to draw from that account during an emergency rather than having to take a risk, even though it may be a small one, with an app.

Resources

An Essential Guide to Building an Emergency Fund

Getting a Community Development Financial Institutions (CDFI) Loan

Start or Join a Conversation

Thanks so much for your dedication to learning more about cash apps and financial well-being.

Many different perspectives are possible about this material side of financial well-being. Your thoughts are key to this community. Please share them here. If you don’t already have an opinion at the top of your mind, consider sharing your views on one of these points:

• Do you use a cash advance app? Please share in the Comments section below if you had any safety concerns and how you came to terms with them.
• Do you still wonder about the security of your information when using a cash advance app? How so?

Do you have a question that wasn’t addressed in this post? Comment below, and I’ll give you my best answer.

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Notice

This post is for educational purposes only and is not legal nor any other type of professional advice. You should consult your own attorney, financial advisor, health provider, or mental health professional concerning any issues in these areas of expertise.

Please understand that facts and views change over time. Posts reflect the author’s understanding at the time of the last update (May 2024), as well as the perspectives of external sources for this post.

While maintained for your information, archived posts may not reflect current conditions.

Photo Credits

1. Engin Akyurt

2. LinkedIn Sales Solutions

3. FlyD

4. Lazar Lazarov