Among the hottest consumer finance topics in recent years is the proliferation of online lenders offering fintech cash advances, including the subset of those lenders who offer earned wage advances (EWA). These are very short-term loans of small dollar amounts that users can access through a smartphone app. Lenders that offer these products strenuously attempt to avoid being regulated like other lenders and rely on legal fictions to assert that their loans are not credit. These lenders also typically argue that their products further financial inclusion while, in reality, the worst versions of these products closely resemble a payday loan, with high levels of repeat usage and expensive fees that add up to APRs over 300%.
Across the entire fintech cash advance class, moreover, there is a concerning lack of active regulation, which lenders have exploited to grow their business despite the real harms that these loans can cause. Frequent reliance on early access to wages is a sign of financial distress, all too common among working Americans, whose wages have lagged behind the rising costs necessary to sustain a basic standard of living. Without appropriate consumer protections and limitations on costs, these products—which have workers paying to be paid—only further reduce workers’ net earnings and reduce wealthbuilding capacity for low-income workers and their families.
The EWA Business Model - EWA Users Generally Do Not “Access” Their Own Earned Wages
- Paying to be Paid: Consumer Protections Needed for Earned Wage Advances and Other Fintech Cash Advances
- State Policy Recommendations for Earned Wage Advances and Other Fintech Cash Advances
- Earned Wage Access: States Should Regulate As Credit, Protect Consumers
- Survey Summary of Earned Wage Advance and Cash Advance Apps
- Video: Earned Wage Access is Credit (In Focus Series #3)
EWA in the News
- “States have a choice: They can adopt real protections, or they can enshrine a system where workers pay to be paid and fintech cash advances are the new payday loan.”
States must protect consumers from high-cost fintech cash advances, American Banker (subscription required)
- “[The EWA] business model is predicated on this attempt to find a technical loophole in the definition of a loan under California law.”
Will California crack down on cash apps that trap women in debt?, Los Angeles Times
- “They’re basically just making payday loans. This is what payday lenders do.”
The new payday loans? California moves to regulate cash advance apps, CalMatters
- "But the truth is that cash advances through earned wage access companies often turn out to cost borrowers almost as much as those other predatory financial products they claim to be killing."
Florida politicians may unleash the next generation of payday lenders, Seeking Rents
- “Giving people the opportunity to borrow from next week’s paycheck because this week is not enough — it’s not a substitute for a living wage.”
Why so many people are paying to get their paychecks, Vox
- New State EWA Legislation—An Act Of Misplaced Trust and Faith?, FlexWage (Op-ed. from EWA company criticizing industry-backed EWA bills as harmful to consumers)
- Financial Technology: Products Have Benefits and Risks to Underserved Consumers, and Regulatory Clarity Is Needed, U.S. Government Accountability Office
- 2021 Earned Wage Access Data Findings, California Department of Financial Protection and Innovation