Block Takes on Payday Lenders with Cash App
The company says new consumer loans to be made by its Square bank through the digital wallet are a less expensive alternative to predatory short-term financing.
The payments giant Block is positioning its Square bank to offer short-term consumer loans through its Cash App digital wallet as an alternative to payday lending, targeting borrowers who are unable to access traditional credit.
Loans made through its Cash App Borrow program, which were previously originated by Salt Lake City-based First Electronic Bank, will be administered by Block’s industrial bank, Square Financial Services, after the company received FDIC approval to offer consumer loans, the company said Wednesday in a news release.
The Cash App loans are about one-sixth the cost of a typical payday loan, a Block spokesperson contended in an email announcing the FDIC approval. The spokesperson declined to elaborate. Consumers are charged a one-time set-up fee for Cash App Borrow loans that usually equal 5% of the loan, the Block spokesperson said in an email.
Based on state law limitations, a typical two-week payday loan might have an annual interest rate approaching 400%, the Consumer Financial Protection Bureau said in a May 2024 post on its website, citing a loan that charged $15 for $100.
The average Cash App loan is less than $100 and roughly one month in duration, Block’s release said. The app originated roughly $9 billion in loans in 2024 through First Electronic Bank, the release said. Block and First Electronic Bank began working together in 2022.
Square Financial Services, which is based in Salt Lake City, launched operations in 2021 and also offers business loans. Consumer advocates have long criticized the payday loan industry for trapping low-income families and cash-strapped borrowers in cycles of debt and perpetuating poverty.
The payday lender industry has argued that it offers credit products to those who can’t get traditional loans.
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