On February 26, 2021, Georgia introduced HB 674, which would authorize earned wage access (EWA) providers to operate in the state and avoid loan characterization by meeting certain requirements, including registration.
This is the latest move in what has been an active space over the past few months at both the state and federal levels. The bill would add a new article to the Georgia Financial Institutions Code and would apply to an "earned wage access service provider," defined as "any person that is engaged in the business of delivering earned but unpaid wages or income to a consumer" in the state of Georgia.
The bill follows efforts by the Consumer Financial Protection Bureau (CFPB) and certain states to provide clarity regarding whether EWA services are subject to regulation as "credit" or loans. In November 2020, the CFPB issued an Advisory Opinion providing that EWA programs meeting certain conditions are not "credit" under Regulation Z, followed by a compliance assistance sandbox Approval Order issued to an EWA provider in December.
At the state level, the California Department of Financial Protection and Innovation has been active, signing memoranda of understanding with five EWA companies in January 2021 with a promise of more to come. New Jersey and South Carolina both have EWA legislation pending, the latter of which was introduced in February 2021 and closely resembles Georgia's legislation.
EWA vs Loans
Georgia consumer lending laws would not apply to EWA providers that comply with the bill's requirements. The bill states that EWA services in compliance with the chapter "shall not be considered a lending activity," and such EWA payments "shall not be considered loans made by the earned wage access provider to any consumer."
Further, any fee for EWA services would not "be considered as interest on such earned wage access payments, and shall not be included in determining a rate of interest for purposes of compliance with any law with which a provider may otherwise be required to comply."
Employer-Based Programs Only
The bill only covers EWA services offered through an "obligor"—an employer or other person who is contractually obligated to pay a consumer "any sum of money on an hourly, project based, piecework, or other basis" for labor or services. Direct-to-consumer models are not covered.
The bill would require that the EWA provider enter into a contractual arrangement with an employer in which:
- The provider verifies a consumer's earned wages/income using data from the employer relating directly to the consumer's earnings in the relevant pay period; and
- Funds are delivered to the consumer ahead of the consumer's regular pay schedule and deducted from the consumer's next regularly scheduled paycheck from the employer.
An employer is prohibited from sharing consumer wage/income data with an EWA provider unless (i) there is a contractual arrangement in place and (ii) the consumer consents in advance to the sharing of such information.
A provider may impose fees for an EWA transaction and deduct such fees from the consumer's next regularly scheduled paycheck on the following conditions:
- The fees must be disclosed in writing to the consumer (i) prior to consummation of the EWA transaction and (ii) at the time of the EWA transaction.
- At the time of the EWA transaction, the provider must obtain the consumer's written authorization to deduct the EWA payment and any applicable fees from the consumer's paycheck.
- The provider must, in effect, notify the consumer that the EWA service is optional by informing the consumer in writing of the right to receive the full amount of their paycheck, without any reduction, in the normal course, if the consumer waits until the next regularly scheduled pay date.
The bill's approach to fees deviates fundamentally from the criteria set forth in the CFPB's November Advisory Opinion, which requires "no payment, voluntary or otherwise" to access EWA funds or use EWA services in order to constitute a "Covered EWA Program" that falls outside of Regulation Z's "credit" definition.
The bill would require EWA providers to register with the Georgia Department of Banking and Finance and comply with a bonding requirement in order to operate in the state.
The bill also provides that a consumer aggrieved by an EWA provider may file a complaint with the Georgia Department of Banking and Finance, which will be reviewed and investigated as appropriate.
We expect other states to introduce EWA legislation and will closely monitor developments on that front as they unfold.