Earned wage advance products—which allow workers to access wages they have already earned ahead of the regular payday—another form of payday lending targeted to workers?
New Research Report “A Loan Shark in Your Pocket: The Perils of Earned Wage Advance”
Center for Responsible Lending (CRL) press release and downloadable report and Arizona infographic| October 14, 2024
"By offering predatory credit with just a few taps on your cell phone, cash advance apps are a loan shark in your pocket. This report shows many cash advance app borrowers are trapped in a cycle of debt like that experienced by payday loan borrowers,” said Candice Wang, senior researcher at CRL. “Cash advance app companies issue loans with triple-digit annual interest rates in nearly every corner of America – even where those rates are illegally high – inflicting financial pain on a growing number of consumers."
Not Free: The Large Hidden Costs of Small-Dollar Loans Made Through Cash Advance Apps
Center for Responsible Lending (CRL) research notice and downloadable report | April 3, 2024
"Earned wage advances (EWA) and cash advance products are small, short-term loans that are typically repaid on the consumer’s next payday either directly from a bank account or as a payroll deduction. Consumers access these products using an app on their smartphone by linking their bank accounts or by enrolling through their employer. The costs of these very short-term loans are not always transparent to consumers, who often pay fees and leave tips to access money and run the risk of unexpected overdraft fees. Workers who are already living paycheck to paycheck may frequently find themselves pulled into a cycle of reborrowing that depletes their net earnings and further erodes their financial stability."
Arizona bill SB 1273 is Opening the Door to Payday Lenders
SB1273 would exempt costly fintech cash advances from Arizona’s lending laws. The bill declares that so-called “earned wage access products” are not loans and that the myriad fees and “tips” people pay are not interest, exempting them from Arizona’s interest rate limits. The bill’s meaningless protections merely codify current business models. This legislation would effectively reauthorize payday lending in Arizona, overturning the will of Arizona voters, who overwhelming rejected payday lending in 2008. That’s because any lender claiming to advance money based on earned wages could set up shop, declare themselves not a lender, and charge borrowers whatever fees they like. See Fake EWAs are Payday Loans, our Arizona EWA Bill Summary, and the Letter from St Vincent De Paul.
Oppose SB 1273. Arizona Doesn’t Need 330% Worker Payday Loans
Letter urging the Arizona AG to Rescind Opinion regarding Earned Wage Access Product
Letter to the Arizona AG | January 24, 2023
"NCLC, along with the Center for Economic Integrity (CEI), the William E. Morris Institute for Justice, and Wildfire, sent a letter to the new Arizona Attorney General urging her to rescind Opinion Letter 122-005 (R22-011) regarding Earned Wage Access Products, which was adopted on December 18, 2022. The letter explains that the opinion is not legally sound and is overbroad. Additionally, it may carve a potentially large loophole in Arizona’s strong anti-predatory lending laws."
AZ AG Opinion re: Earned Wage Access Products | Mark Brnovich, December 18, 2022
Earned Wage Advance is Credit
from the Center for Responsible Lending
From around the USA
South Carolina
South Carolina embraces new EWA law | by Lynne Marek, PaymentsDive, May 23, 2024. "This week, South Carolina became the fifth state to enact a law regulating earned wage access providers, but it doesn’t subject them to lending laws."
South Carolina joins Kansas, Missouri, Nevada, and Wisconsin in adopting an earned wage advance based on the ALEC model bill with no cost cap and no meaningful protections. All these states permit high-cost, predatory payday loans, and now have given permission for a new form of high-cost fintech payday loan.
Connecticut
CT must stop cash advance companies from trapping people in debt | by Annie Harper, Hartford Courant, Dec 5, 2023
"The similarities between earned wage apps and payday loans is alarming. Wage advances are financial quicksand, pulling people into unaffordable debt."
Missouri
Missouri follows Nevada in enacting EWA law | by James Pothen, Payments Dive, July 11, 2023. "Missouri Gov. Michael Parson signed into law bipartisan legislation regarding earned wage access last Thursday, according to a press release from the Republican’s office. Missouri is the second state, after Nevada, to pass legislation regarding the burgeoning industry, say organizations tracking the bills."
Nevada
Nevada passes EWA legislation | by Lynne Marek, Payments Dive, Jun 05, 2023
The National Consumer Law Center opposed the legislation. “The bill would break new ground by declaring that loans made through an ‘earned wage advance’ app are not subject to Nevada’s statutes regulating credit,” the advocacy group said on its website. “The bill exempts fintech payday loans from even the minimal protections required of Nevada payday lenders without substituting meaningful protections.”
Texas
HB 3827, Moving Through the Texas Legislature, Would Leave Texans Vulnerable to Abusive Financial Practices | by Ann Baddour and Briana Gordley, May 9, 2023
California
Will California crack down on cash apps that trap women in debt? | by Aaron Glantz & Monica Campbell, LA Times, May 25, 2023
2021 Earned Wage Access Data Findings from the California Department of Financial Protection and Innovation | Analysis completed Q1 2023
"The average annual APR was 334% for tip companies and 331% for the non-tip companies."
EWA In the News
The costs and pitfalls of ‘earned wage access’ apps that offer loans between paychecks (video) | PBS Newshour, May 12, 2024
These apps allow workers to get paid between paychecks. Experts say there are steep costs | by Cora Lewis, The Associated Press, April 23, 2024
Earned wage access and advances on pay are very different products | by Jennifer Tescher, David Silberman in American Banker [paywalled], January 31, 2024
Workers are paying to get part of their paychecks early. It’s ‘payday lending on steroids,’ one expert says | by Greg Iacurci, CNBC, Jan 28, 2024
States must protect consumers from high-cost fintech cash advances | by Lauren Saunders, Yasmin Farahi in American Banker [paywalled], Dec 20, 2023
"Our top recommendation, especially for states with strong lending laws, is to follow the Connecticut approach: Enforce and, if necessary, clarify and strengthen credit laws to cover fintech cash advances, without creating a new category specifically for them."
New State EWA Legislation—An Act Of Misplaced Trust and Faith? | FlexWage, Dec 13, 2023
"New state Earned Wage Access (EWA) legislation can and must do more to protect the users of EWA."
Note: FlexWage's business model still results in workers paying to be paid, but they make a detailed critique of other models and the flaws of the Nevada and Missouri legislation.
Paying to be Paid: Consumer Protections Needed for Earned Wage Advances and Other Fintech Cash Advances | CRL, October 11, 2023
Download the brief
FlexWage Warns State EWA Legislation Does Not Align With Federal Guidance And Facts | EIN Presswire, September 28, 2023 "FlexWage warns that new state regulation of Earned Wage Access (EWA) disregards guidance provided by the Consumer Financial Protection Bureau (CFPB)."
Why so many people are paying to get their paychecks: Meet wage access apps — or payday loans by another name | By Tatiana Walk-Morris, VOX, Sep 8, 2023
Survey Summary of EWA and Cash Advance Apps | CRL, August 2023
"The Center for Responsible Lending conducted an online survey to better understand the usage patterns of EWA and the prevalence of tipping and expedite fees. We found that consumers are relying on EWA advances to pay for daily, recurring expenses while losing money on fees and tips."
Fintech’s Latest Scheme |
by Jarod Facundo, The American Prospect,
May 1, 2023
"Earned wage access is pitched as a way to instantly get money for paid work. But companies attach high fees, and they are seeking exemptions from consumer protection laws."
Financial Technology: Products Have Benefits and Risks to Underserved Consumers, and Regulatory Clarity Is Needed | U.S. General Accountability Office, March 8, 2023
Toolkit for Advocates
EWA Business Model
EWA Users Generally Do Not “Access” Their Own Earned Wages
EWA in Arizona
CRL EWA in Arizona (infographic) | October, 2024
ARL Fake EWAs are Payday Loans | February, 2024
CEI/ARL Arizona EWA Bill Summary | January 2024
CEI Earned Wage Advance | 1-pager, December 2023
EWA Factsheets
CRL Paying to be Paid: Consumer Protections Needed for Earned Wage Advances and Other Fintech Cash Advances | **Updated October 2024**
CRL & NCLC State Recommendations for Earned Wage Advances and
Other Fintech Cash Advances | October, 2023
CRL Survey Summary of EWA and Cash Advance Apps | August 2023
NCLC Data on Earned Wage Advances and Fintech Payday Loan “Tips” Show High Costs for Low-Wage Workers | April 2023
NCLC Earned Wage Advances and Other Fintech Payday
Loans: Workers Shouldn’t Pay to be Paid | April 2023
CRL Earned Wage Advance: States Should Regulate as Credit, Protect Consumers | Revised March 2023
CFPB Halts Worker Payday Loan Evasions
WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) today proposed an interpretive rule explaining that many paycheck advance products, sometimes marketed as “earned wage” products, are consumer loans subject to the Truth in Lending Act.
Press release, CFPB | July 18, 2024
Data spotlight, CFPB | July 18, 2024
Press release, CFA | July 18, 2024
Press release, CRL, July 18, 2024
Press release, NCLC, July 18, 2024