Earned Wage Access And The Law: A Regulatory Revue

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Over the past few years, earned wage access (EWA) has exploded in popularity because it’s good for workers’ financial health and stability. Financially healthy workers are less stressed, stay at work longer, and perform better, which also helps employers. As a result you’ve seen many employers and employees proactively seek this life-changing technology.

At the same time, while technology leads innovation, regulation always catches up with technology, and it is always important to stay apprised of emerging regulatory trends. Below is a brief overview of relevant legislative and regulatory efforts affecting on-demand pay.

EWA Regulatory Timeline

The first attempt at legislation for EWA began in 2019 in California, with the introduction of SB 472. What began as a more limited bill quickly expanded to cover all types of fintech products. The initial aim of the legislation was to surgically regulate employer-based on-demand pay services. Quickly, consumer-direct wage advance and fintech companies providing overdraft protection wanted to be part of the bill as well, and it ballooned from just a couple pages to dozens of pages.

The California legislative effort by the end became a detailed, prescriptive piece of legislation, fixing in law minute details of the operation of fintech companies. It covered broad territory, and in a fast-evolving space like this, fixing all of this in legislative text, so that innovation would be put on pause, ultimately proved unworkable. Instead, California passed the California Consumer Financial Protection Law (CCFPL), which gave it more flexible authority over an even broader set of fintechs (see our prior piece on that here). SB 472 met its formal demise December 31, 2020.

Since then, no fewer than seven states have attempted legislation on the matter: New Jersey, New York, South Carolina, Georgia, Utah, Nevada and North Carolina. And in late 2020, the CFPB issued an advisory opinion and follow-on sandbox order that provided partial guidance on this continually emerging space. While the CFPB’s safe harbors were narrow (and temporary in some cases), it laid out a framework much more compatible with employer-based EWA programs, similar to those offered by leading EWA providers.

New Jersey’s legislation (A 3450) unanimously passed the Assembly in early 2021. It provides a limited safe harbor only for employer-based EWA providers. A similar bill is now being considered in the Senate (S 3611)

Utah’s legislation (HB 370) met a quick demise as it, like California, sought to take on too many issues within one piece of legislation.

New York, Nevada, South Carolina, Georgia, and North Carolina all follow the general New Jersey approach. While they differ in formulation slightly from state to state, all favor “true” EWA programs (i.e., those that integrate with employers and offer the service as an employee benefit), and provide a registration and reporting regime for employer-based systems. No active legislation contemplates a consumer-direct wage advance safe harbor.

These bills also generally follow a similar, thoughtful framework, or “less is more” approach in terms of prescriptive legislative text. Acknowledging the principle that this technology is still actively evolving, the proposals considered nationwide almost entirely eschew detailed language regarding business models. Generally, as long as there is “true” employer integration (typically defined as a contractual relationship with an employer, use of employer data to verify “net” takehome pay, and payroll integration), the bills do not go further than necessary. The various legislation overwhelmingly distinguishes between employer-based EWA, and consumer-direct wage advance programs, which debit accounts directly and have their own regulatory challenges and considerations.

So while there will inevitably be more to come regarding this space from a regulatory perspective, certain trends are clear: regulators favor the trust and verification inherent in employer-based EWA programs. They also prefer low-cost programs, and particularly those with simple and transparent fees, rather than confusing or misleading fees.

But now with more and more of the Fortune 500 offering these programs, employer-based EWA is increasingly viewed as a mainstay of 21st century payroll, and regulation will continue to catch up to where technology is heading.

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