- Key insight: Representative Bryan Steil, R-Wis, and Representative Ritchie Torres, D-NY, introduced a draft of a federal earned wage access bill to the House Financial Services Committee.
- What’s at stake: In its current form, the bill would prevent EWA from being classified as a credit product and preempt any state from designating it as such.
- Forward look: It’s the first step in a long road to becoming a federal law, and will need to be voted on in committee before it can be officially introduced to the House.
The beginnings of a federal law governing earned wage access was introduced in the House Financial Services Committee Monday that would prevent EWA products from being classified as credit and preempt any state from classifying it as such.
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“Earned wage access can be transformative for working families being crushed by the affordability crisis,” Congressman Torres told American Banker. “In the Bronx, early access to a few hundred dollars of already-earned wages can mean avoiding overdraft fees, keeping the lights on, or putting food on the table.
“This legislation…has been meaningfully strengthened since last Congress with ongoing Democratic collaboration, including tougher disclosure requirements, as millions more Americans have begun relying on EWA,” Torres said.
The bill is expected to be formally introduced to the House in the coming weeks, following feedback on the draft.
“Earned Wage Access enables American workers to access the benefits of their hard work on the timeframe that best meets their needs,” Steil said. “Our reforms will provide clear, consistent, consumer protections for American families and workers who chose to use EWA technology.”
The law covers both employer integrated and direct-to-consumer EWA models, and has multiple disclosure requirements that would force EWA providers to:
- Provide a no-cost option, with a disclosure as to how to access the no-cost option;
- Include disclosures preceding the agreement that outline any limits on the amount customers can request per day, per pay period, or as a percentage of the customers’ total earned income;
- Outline the fees charged for expedited deliveries or service subscriptions; and,
- Provide an overview of the company’s use of tips, including whether it accepts tips and whether it will suggest the customer provide a tip.
EWA providers will also be required to provide disclosures to customers after the provider has approved an EWA disbursement but before that EWA disbursement happens.
Those disclosures need to include information such as:
- The account number assigned to the customer;
- The amount of earned wages provided to the customer;
- Total amount of fees applied;
- A list of any tips the customer has chosen to provide; and,
- The amount the provider intends to collect, the date in which it intends to collect, and the manner in which it intends to collect repayment.
Additional disclosures are required if the provider solicits or receives a tip from the consumer before the transaction is initiated. Those disclosures must “clearly and conspicuously” communicate that the tip is voluntary, is not required to receive an EWA payout, and will not impact the frequency at which earned wages are paid out.
Importantly, the law in its current form would
“If [a state law is] preempted, it means the state law cannot be imposed, maintained, or enforced,” Eamonn Moran, a partner at Holland & Knight, told American Banker. “Any state that takes a stance of, ‘This is a credit product like a loan,’ those laws would probably be in severe risk.”
Any state-specific disclosure requirements that conflict with disclosure requirements in the federal law would also be preempted. But states will still retain relatively broad authority to bring action against EWA providers for Unfair or Deceptive Acts or Practices infractions.
“UDAP authority… could be used pretty broadly,” Moran said. New York Attorney General Letitia James in May of last year
The Consumer Financial Protection Bureau would be responsible for issuing the rules that govern how disclosures would be provided to customers.
“It’s interesting, given the
Still, the preemption provisions, coverage of direct-to-consumer and employer integrated models, and the lack of a credit designation are all positives for the EWA industry, Carlin McCrory, an associate at Troutman Pepper and Locke, told American Banker.
Preemption “would likely be positive for the industry in the sense that you wouldn’t have to do a state-by-state analysis of where you need to have a license,” McCrory said.
Industry groups and EWA providers cheered the draft.
“Getting paid once or twice a month doesn’t work for most Americans, which is why fintech products like EWA are such a lifeline for workers facing affordability challenges,” said Penny Lee, president and CEO of the Financial Technology Association, said in a prepared statement. “These products allow workers to access wages already earned, not future pay, to manage their cash flow responsibly. We applaud Congressman Steil and Congressman Torres for their leadership in drafting bipartisan legislation to protect access to EWA at the federal level and look forward to formal introduction in the House.”
Consumer advocacy groups, however, rebuked the bill, saying that earned wage access is intentionally designed to evade legal definitions of loans and interest to avoid usury limits and other borrower protections.
“Earned wage payday loans exploit low-income workers and are designed to