At any given time, millions of workers are overdue on at least one bill. But it is the rare employer that is late in cutting its paychecks or that bounces them altogether.
Therein lies an opportunity for lending companies like Kashable and OneBlinc and for retailers that do business at sites like payrolljewelry.com and purchasingpower.com: Put yourself at the front of the repayment line by drawing directly from those reliable paychecks. Let other billers wait around to see if customers bounce a payment from their bank account or don’t bother to make one at all.
This clever maneuver is possible thanks to payroll mechanisms that go by terms like “allotment” and “split deposits.” As long as your employer allows it — and some notable big ones, like the federal government, do — employees can set it up themselves.
The customers who agree to this often lack good or any credit history. Without a better option, they put their paychecks on the line and, with a chunk of their wages every pay period, they pay for goods or repay debt within a few years. Some retailers include the cost of their payment plans in their prices and don’t technically charge interest, while the lenders charge up to a 35.99 annual percentage rate.
The pay-via-paycheck mechanisms are not new. Since 1889, members of the United States military have been able to pay bills and transfer money via what’s known as an allotment system. According to a 1978 report from the Government Accountability Office, the federal government also began allowing civilian federal employees to use the system in the 1960s.
For the military, this made sense. Long before push-one-button online payments and near-free phone calls, settling a bill while you were serving overseas was complicated. And, while the G.A.O. report isn’t clear on the matter, at some point federal employees must have asked after this convenience.
What is new — and fascinating — about how the pay-via-paycheck process works nowadays is…
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