Brian Tate is chief executive officer of the trade group Innovative Payments Association, based in Washington, D.C.
Our current economy is presenting financial challenges for people of all walks of life. Now more than ever, people need to have greater control over their money, which includes when they can get paid.
With that in mind, I urge all stakeholders to take a second look at the earned-wage access (EWA) market, including reviewing independent research from notable third parties such as Mercator, KPMG, and the Financial Health Network, to gain better insight into the wide range of providers and the different business models available which allow employees to access their earned but not yet paid wages.
For many workers, EWA provides a vital lifeline to obtain cash for unexpected needs such as auto repairs or health care. For example, according to a recent report from the Financial Health Network “more than four-fifths (83%) of individuals were financially unhealthy at least once between 2018 and 2022.”
EWA is one tool that can help smooth out income volatility. IPA and its member companies are concerned that regulators could unintentionally harm the consumers they are trying to protect if they create rules that impede access to this important liquidity tool. EWA has proven to be a cost-effective alternative to payday loans, overdraft fees and other financial products that can often push low-income consumers into a cycle of debt.
It’s important to note that legitimate EWA programs do not involve an advance payment for services yet to be provided, or create a debt incurred by an employee against future performance. They simply provide workers with access to the wages that they have already earned. In addition to core EWA services, many providers integrate EWA with financial literacy resources, such as budgeting and savings tools, to prevent workers from living beyond their means.
There are two primary EWA models: the employer-based model, and the direct-to-consumer model. It is important to note that most EWA models generally do not lead to the establishment of a lending relationship between the employee and the EWA provider.
Unfortunately, there is a considerable amount of misinformation surrounding EWA. Outdated facts, product misperceptions and bias have made it difficult for consumers to find the information they need to make intelligent choices.
Critics of EWA want to disregard the fact that former Consumer Financial Protection Bureau (CFPB) Director Richard Cordray, after several years of researching the payday loan market, determined that EWA was not a credit product. Further, the CFPB said “no-cost advances and programs to advance earned wages when offered by employers or their business partners” were nothing like payday loans.
It is unclear why critics want to place EWA in the credit silo and call for heavy-handed regulations to restrict access to EWA products. Cordray and consumer advocate groups have called on the payments community to develop products that empower people. Yet when the industry responds with products like EWA, they then call on regulators to restrict consumers access to these valuable innovative tools, simply because the products are new and do not conform to antiquated views.
Specifically, an issue is arising in that there is an advisory opinion from the CFPB, but no regulations yet, but in the interim some people are viewing EWA as a payday loan, as opposed to a helpful financial service.
We all want consumers to understand the products they are using, prevent them from being taken advantage of by bad actors and empower them to make the best possible financial decisions for their families. Why shouldn’t employees play a role in deciding when and how they receive the money they have earned?
Some will argue that allowing employees to receive their own money is potentially dangerous because people will not have enough money on payday. This argument is, at best, paternalistic, and at worst, hypocritical. Either way, it runs counter to the goal of empowering consumers.
First, most EWA users only have access to a percentage of their earned wages (usually no more than 50%). Second, I am not aware of anything more empowering than giving people access to their own earned
wages when they need it – full stop.
Further, to assert that people are not able to manage their money seems to overlook the fact that there are millions of Americans who are independent contractors, business consultants, bartenders, and service workers who get paid a portion of their wages daily without undermining their financial health.
With the array of EWA options in the market today, it is critically important that policymakers learn more about EWA products and how they are used before making any determinations regarding potential legal or regulatory frameworks. Giving people more control over their personal financial lives is clearly the right thing to do, particularly in these challenging economic times.