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State Efforts to Regulate Earned Wage Access Heating Up

Authored By: Lewis Wood on 5/19/2023

SOURCE: American Banker

Attempts across state legislatures to regulate earned wage access services are picking up steam.

Several states, including Georgia, Kansas, Texas and Virginia, introduced bills this year. Others, including New Jersey and New York, have attempted to pass bills in recent years. California's Department of Financial Protection and Innovation (DFPI) recently issued a notice of proposed rulemaking on the subject.

Earned wage access lets consumers get an advance on part of their pay before it hits their bank accounts. Some companies work with employers to provide this, such as DailyPay and Payactiv, while others have created apps directed at consumers, such as Earnin. Proponents argue that consumers need these wage advances to combat inflation, make ends meet and avoid high-cost credit, while critics point out these services may obscure their fees and trap consumers in a cycle of debt, because advancing pay one week means they will be short the next. Banks have started getting into this space. For instance, PNC Financial Services Group worked with DailyPay to launch EarnedIt, an on-demand payroll product for corporate users.

Even though no laws have passed, the states' activity indicates that "the momentum is toward regulating these products," said Jonathan Engel, a partner at Davis Wright Tremaine.

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