04:05 AMERICAS
Contrasting Positions Those advocating for this type of earned wage access (EWA, but also called on-demand pay and early wage access) say it is a new financial tool and not a loan because it is based on the employee’s accrued earnings, money that already is the employee’s but simply is disbursed differently and ahead of the normally-scheduled payday. Just within the past three years, several states—including Utah and Arkansas this year—have supported this view and passed laws to govern EWA. These states take the position that the arrangements generally benefit workers and are to be regulated under different criteria than consumer loans, or “payday” loans. But some view the programs differently. They claim that EWA is not access to earned wages, but simply a unique way of providing loans to cover individuals until payday. According to this school of thought, EWA is a consumer loan and not a benefit to workers. Under some circumstances, depending on the amount requested, the timing of the request before payday, and any fee, workers can be subject to an interest rate equivalent that exceeds state limits.
Connecticut, without passing a law, is requiring EWA providers to register and be licensed like any other loan provider, subjecting them to interest rate limits. This effectively bans many EWA business models from operating in the state. While California, with its particular concern for consumer protection, labels EWA as a loan, recent requirements distinguish EWA from other loans, allowing providers of on-demand pay solutions to continue to operate in the state. California, like other states, recognizes two categories of EWA providers—employer integrated or direct-to-consumer—exempting some from interest rate caps under the state’s financing law and separating the registration process for the programs. There also has been some back- and-forth on this issue on the national level. In 2017, the Consumer Financial Protection Bureau (CFPB) mentioned that such arrangements possibly were not credit and not necessarily subject to loan requirements as covered by the Truth in Lending Act (TILA). But, in 2024, under a Biden Administration proposal, the CFPB stated many such arrangements, particularly those that apply transaction and
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GLOBAL PAYROLL MAGAZINE ISSUE 11
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