Earned Wage Access Demand Bumps Up Against Litigation and Drumbeat of State Regulations

PYMNTS Intelligence has spotlighted the appeal of on-demand wages, as the ability to break free from the two-week pay cycle allows workers to manage cash flow and their expenses in a more fluid manner.

In the “No-Wait Wages: Leveraging Instant Payments to Boost Employee Satisfaction” we found that 83% of individuals want to have more frequent pay schedules. Seventy-five percent of millennials said earned wage access (EWA) availability would influence whether they would accept a job offer.

Speedier access to funds matters, too, in an environment where two-thirds of people in the U.S. live paycheck to paycheck. In a separate report, “Measuring Consumer Satisfaction With Instant Payouts” found that 77% of consumers opt to receive instant payments for income and earnings disbursements.

If the concept of EWA is clear — employees can get their accrued wages before the “traditional” payday payout — the regulatory environment governing the FinTechs (and some credit unions) that offer EWA is less so. As PYMNTS reported last year, the Consumer Financial Protection Bureau (CFPB) had sought to classify EWA products as consumer loans; that rule has languished as the new presidential administration has taken shape and as the very structure of the CFPB continues to be uncertain.

But critics, such as the American Bankers Association, have charged in commentary submitted to the CFPB that fees tied to the EWA products are not finance charges (and EWA is not credit) “banks engage in providing EWA services primarily because it advances the bank’s relationship with the employer and with the employer’s employees — not because the product generates significant revenue for the bank. … The Bureau’s interpretive rule will discourage banks from offering EWA products, limiting access to a convenient and potentially free source of small dollar, short-term liquidity.”

The association contended, “Without access to EWA funds, consumers who had relied on these products may turn to less regulated nonbank small dollar credit products to meet their short-term liquidity needs.”

Rising Tide of State Regulations

Beyond the stasis at the federal level, there’s been movement at the state level — in the form of legislation and lawsuits. As reported this week, the New York State Attorney General sued earned wage access providers DailyPay and MoneyLion alleging the EWA products are payday loans and that the fees the companies charge on these short-term loans can amount to annual interest rates of as much as 750%.

DailyPay has filed its own suit seeking declaratory relief, and has stated that EWA offerings are not loans. The AG is seeking undefined restitution for borrowers and civil penalties.

Elsewhere, since the dawn of this year, 16 states have proposed legislation governing EWA providers operating in those states. All told, seven have passed laws regulating EWA — two of them this year alone.

The most recent examples were seen, this year, in Utah and Arkansas. The Arkansas legislation mandates that there be at least one no-cost option offered to users; in Utah, for  another example, law that was signed last month includes language that the EWA provider “is not offering a loan or other form of credit or debt, if the provider is not a creditor, a debt collector, or a lender; or is not offering a money transmission, if the provider is not a money transmitter.”

Connecticut has declared that the EWA offerings are loans, and in California, regulation that took effect this year has classified them as loans as well.