Wisconsin Law Fuels Ongoing Earned Wage Access Debate

Gone are the days when financially constrained employees had to wait for the conventional two-week pay cycle to receive their wages.

Nowadays, earned wage access (EWA), also referred to as early, instant, or on-demand pay, is rapidly gaining popularity, granting employees access to their earned wages before their regularly scheduled payday.

Read more: The Rise of Instant Payroll Payments

This trend is consistent with insights from PYMNTS Intelligence research, indicating that real-time access to wages can be a game-changer for consumers living paycheck to paycheck, a demographic now comprising approximately 60% of the U.S. population.

Many individuals in this group rely on emergency funds, with a significant portion having depleted a  substantial percentage of their savings for large expenses at least once.

Moreover, EWA provides consumers with an alternative to higher-cost options or bank overdraft fees, as Rob Nardelli, director of commercial banking and business development at DailyPay, explained in an interview with PYMNTS last June.

“They’ve earned the hours and wages. EWA just gives them access,” Nardelli said.

Similarly, Louis Ajacques, co-founder at French HRTech firm Spayr, stressed the importance of employers recognizing emerging trends in the future of work, such as on-demand pay.

“The future of work is basically putting the employee back at the center of the equation, and employers have no choice but to adapt to what the employee wants, and flexible access to their salary is part of this growing future of work trend,” Ajacques said in an April interview.

Opinions Diverge Over EWA Laws

In 2020, earned wage access or cash advance apps providers gave customers access to an estimated $9.5 billion, marking an almost 200% increase from 2018, according to Aite Group, per Bloomberg.

While these apps do not charge traditional interest rates like payday loans, the imposition of monthly membership fees, bank transfer fees, and charges for instant access or same-day deposit has sparked a debate — and subsequent regulatory actions — regarding the classification of these income-based advances as loans.

Earlier this month, Wisconsin joined Nevada and Missouri as the third state to enact legislation establishing financial services oversight for earned wage access service providers, as announced in a Mar. 21 press release from the office of Wisconsin Gov. Tony Evers.

The bipartisan bill, supported by industry players like DailyPay, establishes a regulatory framework for earned wage access service providers, requiring them to obtain licensing from the state’s Department of Financial Institutions (DFI), regardless of their physical location.

Notably, the bill refrains from categorizing EWA payments as loans, and some advocacy groups raise concerns about whether these industry-friendly regulations have sufficient measures to prevent potential consumer exploitation.

EWA fees can be excessive and “horribly destructive,” Lauren Saunders, associate director at The National Consumer Law Center, told PaymentsDive, arguing that the new law will not adequately safeguard state residents.

Other states, such as California, are aiming to subject EWA payments to lending laws, a move endorsed by consumer protection advocacy groups like the Center for Responsible Lending.

“People are paying quite a lot to use these apps,” Andrew Kushner, senior policy counsel at the center told CBS8. “It doesn’t necessarily look like a lot at first glance.”

At the federal level, the Consumer Financial Protection Bureau (CFPB) has pledged to offer “further guidance” in light of California’s actions. Additionally, Congressmen Bryan Steil, R-Wisc., and French Hill, R-Ark., have introduced the Earned Wage Access Consumer Protection Act, marking the first federal-level regulatory and disclosure framework for earned wage access.

Trade groups such as the Financial Technology Association (FTA), which represents leading FinTech companies, have voiced support for the congressional bill.

“Getting paid once or twice a month doesn’t work for millions of Americans trying to make ends meet between paychecks,” FTA President and CEO Penny Lee said last month. “We applaud Congressmen Steil and Hill for introducing landmark federal legislation regulating earned wage access and providing clarity for the millions of American workers and businesses that rely on it.”