State Legislators Debate ‘Earned Wage Access’ Products

The financial services company Payactiv offers wage earners an enticing pitch.

“Live the life you earned,” reads a headline on the company’s homepage. “With Payactiv, you can access your wages as you earn them before payday...”

Sounds perfectly reasonable.

But Payactiv and its competitors in the burgeoning “earned wage access” industry—DailyPay, Earnin and Dave—are facing uncomfortable questions in state legislatures across the country: Are these new banking apps offering a brand new financial service or are they really just loans by another name?

The answers could have major implications for a sector estimated to be worth about $23.5 billion annually in the United States.

Rise of Earned Wage Access Services

Earned Wage Access, or EWA, programs began growing in popularity during the COVID-19 pandemic, when some consumers were facing major cash-flow problems.

The programs are employer-based services, operating through a contract between a service provider and employer. The agreement lets providers like Payactiv access an employee’s timecard to determine their wages earned.

Employees who opt to tap their wages before payday are charged a service fee by the third-party provider.

Providers claim their services are a wholly different product than traditional credit, cheaper and safer, among other things. But consumer groups like the Center for Responsible Lending, Americans for Financial Reform and the National Association of Consumer Advocates allege they’re nothing more than a modern take on payday loans.

“Research by CRL and others has demonstrated using these fintech cash advances leaves many consumers worse off—paying high fees for small loans, increasing their risk of overdraft, and having to reborrow paycheck after paycheck,” the Center for Responsible Lending writes on its website. “Regulators should enforce credit laws to increase transparency and to protect consumers' paychecks from being eroded by fees and tips.”

Providers staunchly disagree.

“No, earned wage access is a cost-effective alternative to predatory payday loans” DailyPay writes on its website in a Q&A about EWA. “Employees pay a small ATM-like fee for immediate transfer or have a no-fee option for a transfer in one to three business days, which can save thousands of dollars and avoid damage to credit scores and financial health.”

States Generally Siding with Providers So Far

So, who’s right, the providers or the consumer groups? Ultimately, it’s subjective and thus far the providers’ argument seems to be carrying the most weight with state lawmakers.

Only Connecticut legislators have defined EWA transactions as small loans, while over the past 18 months legislatures in Kansas, Missouri, Nevada, South Carolina and Wisconsin have all passed industry-friendly bills that explicitly define EWA products as not loans.

That said, the question clearly remains a hot topic in state legislatures. According to State Net’s legislative tracking system, EWA regulation was the topic of at least 18 bills in 12 states in 2024. Only three of those measures were passed—in Kansas, South Carolina and Wisconsin—while another five are still pending in Massachusetts, New York and Ohio.

The other 10 bills failed in Arizona, Connecticut, Florida, Georgia, Hawaii, and Maryland, hinting at the bubbling contentions over the sector.

Dozen States Weigh ‘Earned Wage Access’ in 2024

At least 12 states considered legislation dealing with “earned wage access” this year, according to the LexisNexis® State Net® legislative tracking system. Three of those states—Kansas, South Carolina and Wisconsin—passed such measures.

Federal Government Seems to Favor Consumers Groups’ Arguments

While the consumer groups’ perspective seems to be losing at the state level, it may have gained some purchase at the federal one as the Consumer Financial Protection Bureau in July proposed an interpretive rule declaring EWA products to be consumer loans subject to the Truth in Lending Act.

If implemented, the rule could swing the pendulum the other way, leading to tougher regulation of the industry across the country.

Still, as the national law firm Epstein Becker Green recently noted on its Workforce Bulletin blog, there is much “regulatory conflict” over EWA at the moment, with no consensus on how these products should be overseen.

Result is Balkanized Regulatory Environment

Epstein Becker Green pointed out that while Kansas, Missouri, Nevada, South Carolina and Wisconsin don’t consider EWA products to be loans, “they are regulated,” with a different regulatory scheme in each state.

Further complicating matters, while Connecticut is the only state where lawmakers have declared EWA products as loans, regulators in California have produced similar rules regulating them as loans. Meanwhile, the attorneys general in Arizona and Montana have issued guidance saying EWA products are not loans.

“Navigating the increasingly complex state and federal regulatory scheme for EWA providers is no easy task, and employers that are considering such a benefit must assess how the varying approaches in relevant jurisdictions may affect the use of this product,” attorney Susan Gross Sholinsky and law clerk Gretel Zumwalt wrote on the Workforce Bulletin blog. “Employers offering EWA, as well as payroll providers and third-party EWA vendors, should consult with counsel to ensure their policies and procedures comply with current regulations and can be adapted to future regulations.”

It’s a fair bet that this could be a topic of further debate in 2025.

—By SNCJ Correspondent BRIAN JOSEPH