In recent years, earned wage access (EWA) – an innovative technology that enables workers to access their own, already earned wages without having to wait for payday – has rapidly become a table stakes employee benefit. By accessing their own earned wages, workers are able to avoid high-cost predatory products like payday loans, bank account overdrafts, and credit card debt when unexpected expenses arise between paychecks. This technology is a lifesaver for the 62% of workers who live paycheck-to-paycheck, the majority of which do not have $400 in savings to cover an emergency bill, like a car repair or medical bill.

As EWA has grown in popularity, it follows that policymakers would want to provide oversight and protect consumers against bad actors in the space. Earlier this year, policymakers in Nevada enacted widely-supported bipartisan legislation to create the first EWA license in the country. Missouri followed soon after Nevada, enacting the second registration system. In doing so, legislators created a number of important consumer protections for users and provided the guideposts around which the industry can grow and innovate. Recognizing this significant new regulatory framework, the Council for State Governments recently voted to include the Nevada bill in its Shared State Legislation Volume, an annual publication that highlights innovative laws passed at the state level each year.

Consumer protections in EWA regulation

As the state legislative sessions approach in January, many policymakers are looking at this model legislation and considering regulatory frameworks to govern the growing EWA industry.

By creating a new EWA license or registration system, legislators have the opportunity to encode important consumer protections into law. There are several key consumer protections that legislators should consider when drafting EWA frameworks.

• Verification of wages: Workers should only be able to access wages that they have already earned, and verification of wages through payroll or other means is a critical consumer protection for legislators to adopt.
• No recourse against users: Employees cannot be referred to collections or reported to credit reporting agencies.
• Limits on fees and costs: As the first state to create an EWA license, Nevada created many important protections on fees – including banning late fees, penalties, or interest in EWA transactions.
• Free option for workers: Workers should have at least one option to access their earned wages for free, and legislative frameworks have the opportunity to encode this important requirement into law.
• Fee transparency and disclosure: Any regulatory framework should require all fees to be clearly displayed to users. This includes protections around models that solicit “tips,” including disclosures that tips are voluntary and may be zero.
• No credit checks: Workers of every background should have access to their earned wages, regardless of creditworthiness. In fact, EWA is a powerful option for employees who have subprime credit scores. Legislation should ensure all workers have access to their earned wages without regard to their creditworthiness.
• Data reporting: Some states have considered annual data reporting requirements for EWA providers as a part of the EWA licensure and industry oversight.
• Responsible caps on accessible balance: Some providers cap the accessible balance available to workers from 50 to 80 percent of gross pay. This helps account for potential present bias and ensures workers still have wages in their regularly-scheduled paycheck. Legislators can consider this as a meaningful consumer protection measure.

Why regulating EWA as credit is a missed opportunity for consumer protection

As the EWA space continues to grow, regulators are rightly seeking to ensure the industry is properly regulated to prevent bad actors from entering the space. Currently, the only tool in the toolbox for many of these regulators is existing lending regimes – which are a poor fit for a non-credit product like EWA.

By classifying EWA as credit, policymakers miss the opportunity to ensure that EWA stays a consumer-friendly alternative to credit. By creating a new EWA license, for example, policymakers can ensure that EWA never comes with interest, late fees, or penalties; no debt is created for workers; and there will never be any recourse against the consumer, underwriting, or credit impacts. Not only would regulating EWA as credit omit these critical consumer protections, it would likely force providers to develop confusing pricing structures that would ultimately create more costs and risks for consumers.

As the 2024 legislative session approaches, legislators have the opportunity to create new regulatory frameworks that align with the innovative nature of EWA, encode important consumer protections, and ensure workers have access to this important service for the long term.