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.

This policy brief explains what EWA and other fintech cash advances are and how they work, the impact these loans have on consumers, legislative activities of these lenders, and the current legal landscape for regulation of these loans. Finally, this brief recommends vital safeguards for the protection of consumers who use these loans.