JOHN YANG: Two years of high prices for everything from groceries to gasoline have left some people struggling to get by until their next payday to help some returning to what are called earned wage access apps, which offers small short term loans until the next paycheck.

Proponents say they help people with low incomes manage their finances, critics say they can lead to a cycle of overspending and borrowing, and that the costs aren't always clear.

We spoke to people who use these apps.

SHERI WILKINS: My name is Sheri Wilkins.

I was working as a home health aide.

And using the app DailyPay, I would need something at the grocery store, you know, trying to get food and trying to do that.

And this, and I have a pet.

So you know, I have expenses that had to be taken care of immediately.

ANNA BRANCH: My name is Anan Branch.

Honestly, I was like most Americans working paycheck to paycheck, scrolling on the internet, and to me sounded like a no brainer, payday hasn't come, I need some money, they'll give me some money, and then I just have to pay it back.

SHERI WILKINS: I probably spent 300 and something dollars a month on transfer fees alone.

ANNA BRANCH: Every two weeks, I just have to keep borrowing to pay back borrowing to pay back.

And it kind of just turned into one of those cycles.

SHERI WILKINS: You become so dependent on that daily money that you don't look at the broader picture of when you need the money to pay your rent or utilities.

ANNA BRANCH: Once you start getting into that habit, it just -- it kind of feels like a trap.

And something that's never ending.

This is not working the way that y'all said it was going to work.

I'm still trying to pay y'all back and stop paying y'all at some point.

So I can have this money not keep coming out of my account.

JOHN YANG: According to our financial services research firm in the three years between 2018 and 2020, transactions on these apps went from $3.2 billion to 9.5 billion.

Cora Lewis is a business reporter for the Associated Press Corps.

Let's get the basics.

How do these things work?

CORA LEWIS, The Associated Press: So if you're a worker who has an unexpected expense, or you're not sure you can make rent that month, you might see an ad for one of these apps, on YouTube or Instagram.

And all you have to do is download the app and link it to a bank account and agree to whatever the fees might be.

And then on pay day, the app will debit the amount you borrowed along with any fees or tips you've agreed to.

JOHN YANG: How this different from payday loans?

CORA LEWIS: So payday loans typically have very high interest rates like these loans do themselves.

But a payday loan might have a balloon payment down the line, they might sue or send a collector after an unpaid debt which these apps don't do.

So there are some key differences.

JOHN YANG: The advertising for this is that you're getting an early reach into your paycheck is that really what's going on?

CORA LEWIS: The waters are a little muddied right now, because some employers do offer earned wage access that's linked directly to your paycheck.

So, Walmart and Amazon both offer earned wage access without any fees to their employees, which is very different from the direct to consumer model.

In the direct to consumer model, a worker can simply tell the app what their expected wages will be.

And that's enough information for these short term lenders to extend a couple $100 to whoever's using the app.

And there's no credit check for these types of loans as well.

JOHN YANG: Who are typical users of these apps.

CORA LEWIS: A lot of gig workers and hourly workers and retail and food service use these apps and government study found that the average user makes less than $50,000 a year.

So it's really people living paycheck to paycheck, who are already having trouble meeting expenses who are turning to these apps.

JOHN YANG: What are some of the pitfalls?

CORA LEWIS: So if you use them for one unexpected expense, if your car has a flat or you just need a couple $100 one time a month, it might be a really good and safe option.

But what ends up happening often is an employee will use the app one pay period, and then their paycheck will be much smaller in the following week or two weeks.

And so to plug that hole, they may turn back to the app again, which leads to a cycle of borrowing as much as once or twice a month.

And those fees can really add up.

It makes it increasingly difficult to budget some researchers have found, where instead of having a reliable amount of money every two weeks, you have this much smaller paycheck on pay day that you then have to compensate for perhaps by taking out another short term loan.

JOHN YANG: And you're talking about the fees and the cost of this.

What are there fees?

CORA LEWIS: So the companies will say the fees are comparable to ATM fees.

So really just a couple of dollars per use case and cheaper than overdraft fees which can be $25 to $36.

So maybe cheaper than overdrawing and account.

Many apps do ask for a monthly subscription fees or tips which increase the costs.

And when you look at them proportionally, the fees are really very high for such small dollar loans.

JOHN YANG: Is there any federal or state regulation of these like payday loans are regulated?

CORA LEWIS: So at the state level, Connecticut has passed a law making sure that these apps abide by the state's usury limits for interest.

And as a result, at least one company stopped operating there.

California is looking at similar laws to cap the fees.

And at the federal level, there's an industry back to bill that would allow them to continue operating as they are now.

JOHN YANG: Wasn't there a recent opinion from the Consumer Protection Financial Bureau that said these are not loans and so they do not fall under federal regulation.

CORA LEWIS: So that's part of what's contributing to the regulatory gray area right now, the question of whether these are loans or cash advances, and that will really determine how high the fees can be in the future.

So there's a possibility that the Consumer Finance Protection Bureau will review that guidance and decide that these apps should be regulated the same way payday lenders are, which would have a considerable impact on the business as it as it stands right now.

JOHN YANG: Someone who's running low on cash before the next pay day, they've got bills coming due, what should they consider?

What should they think about before using these?

CORA LEWIS: Before downloading any app, make sure you have a sense of what the cost of that loan will be.

So that means look for monthly subscription fees.

Think carefully about linking your bank account.

And then when you are asked for fees when it comes to an instant transfer, look for a one to three day transfer option, which is often cheaper or free.

And then keep in mind that when these apps asked for tips, it may sound like they're going towards other vulnerable consumers and low income people who need to make ends meet.

But in fact, many of those tips simply support the company's operations themselves.

JOHN YANG: Cora Lewis with the Associated Press, thank you very much.

CORA LEWIS: Thank you for having me.