Connecticut Gov. Edward “Ned” Lamont last week signed a bill into law that imposes earned wage access regulations that providers of those services have opposed.
Lamont, a Democrat, enacted the new law on Tuesday and it takes effect Oct. 1. The two houses of the legislature, which is controlled by the same party, passed the legislation over the past two months.
States have increasingly sought to oversee expanding EWA services and their providers. Connecticut now becomes the 11th state to have passed a law in recent years specifically related to earned wage access, following Louisiana earlier this month and Maryland in May. A 12th state, California, imposed oversight under a different law.
Earned wage access has become a popular way for employees to access their pay before a regularly scheduled payday, but the practice has also triggered controversy because of fees associated with some services, like accelerated payment. Dozens of EWA service providers, which include DailyPay, EarnIn, Flexwage Solutions and Chime, have voiced varying views about legislative proposals cropping up across the country.
The Connecticut law caps fees that can be charged at $4 per advance, and $30 in total per month. It also limits the accrual of interest after the maturity date to 12% on a daily basis for the unpaid balance.
In addition, the law caps late fees at 5% “of the outstanding installment payment, excluding any previously assessed late fees, or a total of twenty-five dollars per month, whichever is less.” It also bars providers from asking for repayment prior to the user's next scheduled paycheck.
The Chamber of Progress, which represents a number of fintechs including DailyPay and EarnIn, issued a Thursday press release criticizing what it called “the nation’s strictest monthly fee cap on EWA providers.” It also argued that the law will force Connecticut families living paycheck to paycheck to use more expensive alternatives and disadvantage smaller EWA service providers.
EWA firms use an array of methods for providing the services, with some offering the payments through employers and others reaching out directly to consumers. They also have different revenue-generating models, with some exacting fees from users and others providing payment cards to workers and then reaping interchange fees from merchants when the users spend.
States that have passed new laws chiefly calling for licensing of EWA providers have received support from the industry. But some legislative proposals, including Connecticut’s, have drawn opposition.
The American Fintech Council as well as the CEOs of DailyPay and EarnIn sent a June 25 letter to Lamont opposing the Connecticut bill. The letter writers, including AFC CEO Phil Goldfeder; DailyPay CEO Stacy Greiner; and EarnIn CEO Ram Palaniappan, also dinged the bill’s requirement that EWA providers offer at least 75% of a worker’s earned and unpaid wages for a pay period, saying it will unfairly preference the largest EWA companies.
Despite the letter, DailyPay issued a Thursday press release and statement contending the law offers “certainty” and means that EWA providers are “exempted from Connecticut's Small Loan Act’s annual percentage rate and other requirements of traditional loans and credit products.”
When asked whether DailyPay had had a change of heart about the law, a spokesperson for the provider said the company adjusted its services to comply with the state’s department of banking guidance. The spokesperson also offered a statement from the company’s chief legal and strategy officer, Jared DeMatteis, saying DailyPay welcomed the “full return” of its services to the state.
Still, the statement also suggested DailyPay might contend the law’s caps are not legitimate if they’re not implemented correctly. A spokesperson for the company didn’t immediately respond to a question seeking to clarify that point.
We “look forward to collaborating with lawmakers to ensure that any proposed regulatory changes, such as fee caps, are evidence-based and consider consumer impact,” DeMatteis said in the statement.
