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Louisiana and Connecticut have become the latest states – 11 and 12 – to advance regulations governing earned wage access as the finance tool continues to gain traction with state lawmakers. Connecticut has taken a more stringent approach that puts an increased burden on EWA providers, while Louisiana’s law has much in common with the 10 state laws already on the books.
Distinctions between these state laws could begin to present challenges to providers, said Eammon Moran, a partner with Holland & Knight.
“One of the key points is that while there are some topics of uniformity in at least some of these states, there are also a lot of little – but yet critical – distinctions and variations from state to state,” Moran told American Banker. “So, this can make compliance a bit more challenging than some might expect, especially for EWA platforms doing business nationwide.”
Louisiana’s rule becomes law without the governor’s signature
Louisiana’s law on EWA (
It’s not uncommon for bills to become law without the governor’s signature, Moran said, noting that
“In Louisiana, a bill can become law without the governor’s signature under specific circumstances,” Moran said. “If the governor receives a bill and doesn’t sign or veto it within a designated period, the bill automatically becomes law without their signature.”
The requirements follow the roadmap of
The bill maintains that EWA providers are not engaged in lending, money transmission or debt collection and it does not impose any licensing requirements on providers.
It also requires EWA companies:
- provide fee disclosures;
- have an outlet for complaints and questions;
- offer at least one no-cost option; and,
- allow fee-free cancellations.
Conversely, EWA providers in Louisiana are prohibited from:
- accepting credit card payments for tips and fees;
- charging late fees;
- recovering outstanding fees, or engaging in any debt collection activities, whether through a third party or otherwise.
Earned wage access has been a
Critics say that the fee structure, along with tips, coupled with the relatively low dollar amount put the annual percentage rate of the advance in the triple digits, similar to other predatory lending models. EWA companies have maintained that the money is not a debt and shouldn’t be treated as such, but providers have supported reasonable EWA regulations.
The American Fintech Council, an industry group that has been campaigning around the country for legislation that carves out EWA as its own finance product, cheered the move.
“Louisiana’s action on this legislation shows that states can lead the way in crafting commonsense rules that protect consumers without limiting access to valuable financial tools,” said AFC CEO Phil Goldfeder in a statement. Goldfeder testified in favor of the legislation in front of the Louisiana House Commerce Committee in May.
DailyPay, an employer-integrated EWA provider that has also been active in advocating for favorable regulations to the industry, also supported the requirements.
“Louisiana has joined 10 other states — four of them just this year — in implementing clear on-demand pay regulations that allow employers, employees, and providers to thrive,” said Jared DeMatteis, chief legal and strategy officer at DailyPay. “This new law will empower employees with real-time access to their earned wages and help businesses build stronger, more engaged workforces.”
Connecticut allows EWA, but imposes stricter rules
Connecticut’s law (
The Constitution State has been a battleground for the EWA industry. Previously, regulators limited the product to the 36% usury cap in the state’s small loan act, effectively barring providers from offering the product in the state in January 2024.
The interpretation was the first of its kind, and a blow to EWA providers in the state, spurring increased lobbying efforts and studies on the broader effects of EWA, including one conducted by the University of Connecticut and commissioned by DailyPay.
The state’s amendment marks the return of EWA to the state, albeit with more restrictive measures when compared with other states, Holland & Knight’s Moran said.
First, the law classifies EWA services as a small loan and creates a tailored fee cap in lieu of the 36% interest rate cap that limits the total finance charge to $4 per advance or $30 per month.
That’s the “lowest fee cap of any EWA bill to date,” Moran said.
Advances are capped at $750 and can only be provided once per pay period if the provider does not allow users to access at least 75% of their wages.
Notably, the law also requires that providers verify a consumer’s earned wages through payroll data or another method approved by the state’s banking commissioner, and it prohibits EWA companies from setting the default tip amount above $0.
“Both these provisions present compliance challenges for certain providers, particularly direct-to-consumer,” Moran said.
EWA providers will also be on the hook to prevent consumers from stacking multiple EWA advances from different providers using the same unpaid income.
The Chamber of Progress, a center-left tech industry policy coalition, said in a statement the law was too restrictive and unintentionally benefited predatory lenders.
“Nearly two in five Connecticut families live paycheck to paycheck. Cracking down on earned wage access tools will make it harder for consumers to pay their bills and meet the rising cost of living,” said Chamber of Progress Northeast Government Relations Director Brianna January in a statement. “Going after these services will only drive consumers back to the devastating debt cycles associated with payday lenders.”