Earned Wage Access: States Weigh In

Hello everyone! It was great to see so many of you at Ignite 2023, our League Annual Meeting in Williamsburg this year. During the welcome reception, we were joined by two Virginia legislators - Delegate Amanda Batten and Senator Monty Mason, both of whom serve Williamsburg. Another thing they have in common? They both introduce bills this year relating to a fintech product on the rise: earned wage access (EWA) services.

In recent years, the concept of traditional payday cycles has been challenged by the emergence of EWA. These services are changing the way employees access their earned wages while touting flexibility and convenience. Across the country, states are tackling how to fit EWA services into their legislative and regulatory framework built around traditional finance. What is EWA? Who are the players in the market? And how are they being regulated? As we like to say - let's dive in!

What is Earned Wage Access?

EWA, also known as on-demand pay or instant wage access, is a financial service that enables employees to access a portion of their earned wages before the traditional payday. Instead of waiting for the end of the pay cycle, workers can access a portion of their already earned income to meet immediate financial needs or address unexpected expenses. Companies offering these services will say this approach empowers individuals by providing greater control over their finances and helping to avoid costly payday loans or overdraft fees.

Earnin is a large player in the EWA space. They offer users the ability to access funds from their upcoming paycheck early. The user downloads an app, links it to their bank or credit union's online banking, and submits information about their employer. If they need an advance before their paycheck, they request the funds and leave a "tip" if they choose to. Earnin credits the funds to the user's account, and then debits the amount on their payday.

While Earnin offers EWA directly to consumers, other providers partner with employers to be able to offer EWA to their employees. PayActiv, DailyPay, and others operate this model, which integrates with payroll systems and aims to reduce financial stress and improve the productivity of employees while helping employers attract and retain talent. Revenue comes mainly from the employers they partner with instead of directly from the users.

State Legislatures and the EWA Landscape

As earned wage access services have gained popularity, state legislatures across the United States have started to address the regulatory aspects of this emerging financial technology. The legislative landscape varies from state to state, with some embracing and regulating EWA services, while others remain cautious or have yet to enact specific laws.

Several states have established regulatory frameworks that ensure transparency, consumer protection, and fair practices within the EWA industry. These regulations often require EWA providers to disclose fees, maintain licensing, and comply with strict security standards to protect user data. Conversely, other states have expressed concerns about the potential for EWA services to resemble payday lending and are considering how to strike a balance between protecting workers and fostering innovation in the fintech sector.

Here in Virginia, we saw two approaches this past legislative session. Delegate Batten's bill, HB 1921, would require any company providing EWA services to obtain a license from the SCC. Senator Mason's bill, SB 1217, directed the SCC to study the issue and report findings and recommendations. Neither bill was passed into law this session.

It is likely that more EWA legislation will be introduced when the General Assembly re-convenes in January. In the meantime, the CFPB may weigh in further on EWA services, specifically on the question of whether they are "credit" products under the Truth In Lending Act. Stay tuned!