“Dave” by Mark Cuban Offers Interest Free Loans to Avoid Overdraft Fees

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To borrow a word Donald Trump used to describe healthcare, balancing your checkbook can be “complicated.” And it’s always good if you have a buddy or relative to call to help you fill the gap in your wallet between the last Moscow Mule and salary.

Time and time again, however, the shortfall in your checking account invades you – and bam! Another $ 34 “Insufficient fund charges. “Really hunt?

A new fintech app called Dave (pictured as a cuddly bespectacled bear) wants to help make those ridiculous overdraft penalties a thing of the past. Dave alerts you when you’re going to blow your budget and will even lend you up to $ 250 – interest free – until your next payday.

“Everyone involved in the business has been chronically uncovered,” says Jason Wilk, founder and CEO of the Los Angeles-based startup. Even billionaire investor Mark Cuban, who sunk $ 3 million into Dave, said he was “crushed by overdraft fees in his twenties.”

Dave’s goal is to “outsmart the finds” so that users never need the bear to spot them. For $ 1 per month, the app syncs with customers’ checking accounts to monitor their spending habits and predict when they’re at risk of overdrawing their accounts.

Dave’s pop-up warnings are different from banking texts that alert customers when balances are low in that they anticipate regular expenses – like rent or utility bills – and more emphatically warn bad budgets that the danger is. to come up.

the the Wall Street newspaper reported last month that consumers spent more than $ 33 billion on overdraft fees in 2016, citing data from Moebs Services research firm. This is the highest rate since 2009, just before the entry into force of regulations requiring banks to offer their customers overdraft protection services. The average American pays $ 136 in overdraft fees per year, according to Dave’s data.

“Overdraft is such a pervasive problem,” says Wilk. “It’s like the ultimate and most expensive form of credit. “

Dave’s target users are millennials. Think of a young professional straight out of college who doesn’t quite have the financial discipline to always keep his account balances positive, or enough savings to act as a buffer when unforeseen expenses arise. “Amazon is the number 1 place in Dave where people spend their money,” Wilk notes.

Not everyone is fit for Dave. Users should share their checking account history the same way money management apps like Mint require, explains Wilk.

If things seem a little too reckless, the bear will walk away. Dave tries to verify that users have the income to pay off a loan. Typically, it takes two to three months of revenue history to get approval. The company doesn’t pull credit histories so that users don’t see an impact on their credit scores while using the app.

Verification history data helps Dave’s machine learning systems predict when users might need a loan. These algorithms allow the app to show an estimate of the lowest point that user balances will reach in the next seven days. And if Dave predicts that a recurring expense, such as a bill or a weekly trip to the grocery store, is likely to trigger an overdraft, the app will notify customers.

“We send them a notification to let them know that they are at high or high risk of overdrafting, depending on how long in advance we send them the notification,” Wilk explains. The company aims to give customers a week’s notice, ideally giving them time to cut down on discretionary expenses like Uber rides or expensive groceries and avoid the need for a loan altogether, he says. .

Sharing data with the company will likely seem scary to some, although Wilk says Dave has no plans to share anyone’s financial history with third parties. The CEO also says the company doesn’t charge any fees beyond these optional tips, and an instant transfer fee of $ 3 is passed on to Dave’s payment provider if customers need a loan within the hour for them. keep their account balance in positive territory.

Wilk says the company is working with vendors to lower these fees and ultimately make free instant payments as well.

The loans are repaid automatically from the user’s bank account on payday, Wilk says, although the company indicates an additional charge of $ 10. customers can pay by check instead.

Customers are of course free to pay Dave back sooner and the company says they might get an increase in the amount they can borrow to do so.

Beyond these fees and the monthly dollar cost to Dave, the app also generates income in a way that is unusual for a lender: voluntary tips. Users are asked if they want to tip and what they want when the loan is paid off. Customers can choose a tip percentage, similar to other payment apps, or choose not to tip at all.

A watchdog group has expressed some concern about the tip system. Consumers may feel pressured to tip, National Center for Consumer Law Associate Director Lauren Saunders said that although the company offered insurance, it was not necessary.

“I suspect it might not be so voluntary, or that the tips might really add up,” she says, and ultimately not be too different from an interest rate.

The company’s terms of service clearly state that tips are “100% voluntary” and will not “affect service” or a customer’s ability to access funds.

Dave isn’t the only online financial services company offering tips for users: getting started Active hours offers a somewhat similar model, allowing customers to scan electronic timesheets to receive bank deposits for the amount they earned that day, and then reimburse the company on payday.

Dave tries to get customers to tip by pledging to plant a tree in sub-Saharan Africa, in collaboration with the nonprofit Trees for the future. For example, a 6% tip on a $ 100 loan will generate $ 6 and the planting of six trees.

“By helping us plant trees, you are giving families the opportunity to switch from unsustainable farming techniques to a forest garden system,” the charity says on its website. “Your donation not only sustains and strengthens them, but also changes their lives forever. “

During the first preliminary tests, Wilk said the company has made more than 100 loans.

“At the moment, each person has paid us back in full,” he said ahead of the launch.

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