Adam Kovacevich is the founder and CEO of Chamber of Progress, a tech industry coalition. He formerly led public policy for the tech giant Google and bike share company Lime.

Almost a decade since Democrats launched a crusade against payday lenders, it’s clear the campaign to curb predatory lending has had its share of successes.

Across the country, in states from California to Illinois, payday loan activity has dropped dramatically. Democrats should be proud of the Consumer Financial Protection Bureau’s work to protect consumers from the high costs and debt traps associated with these deceptive products.

But now the CFPB could undo this progress by cracking down on a popular alternative to payday lending: earned wage access apps. The CFPB’s plan to reclassify EWA as a loan could accidentally backfire on the agency by driving people right back to the payday lending industry — a huge step backward for the CFPB’s pro-consumer mandate.

EWA apps work by extending small short-term advances to workers between paychecks, enabling them to pay bills and meet everyday needs with the money they’ve already earned. Unlike credit or loans, EWA is non-recourse and does not require a credit check, underwriting, or base fees on creditworthiness. 

Generally, EWA apps do not charge interest, late fees or penalties, nor do they impact a user’s credit score. Instead, these products often rely on voluntary tips from users and fees for expedited wage delivery.

And unlike payday loans, which are not tied to wages already earned, EWA only allows users to access a small portion of their upcoming paycheck — making it difficult for consumers to fall into a debt cycle, like those created by payday loans. 

EWA tools have been around for more than a decade, but they surged in popularity during the pandemic. More and more workers are turning to EWA for financial flexibility, particularly in the face of economic uncertainty and rising prices. Even high earners can face financial emergencies, and EWAs offer a safer alternative without the punitive costs associated with predatory lending.

Now the CFPB wants to slap a 1968 law on EWA tools that would effectively reclassify EWA as a paycheck loan - putting them in the same regulatory camp as the predatory lenders EWA has helped to provide an alternative to. The CFPB’s reasoning? EWA products offer options for consumers to tip the platform or pay extra to expedite their withdrawals.

Imagine if that same logic was applied to the whole suite of fintech apps consumers use today, including payment apps like Venmo or CashApp. Most people think of Venmo as a free platform — even though Venmo does charge a fee for certain premium services, like expediting a bank account deposit. 

Following the CFPB’s logic, Venmo fees for expedited deposits should be displayed as an annual APR interest rate, like a credit card. That would confuse most people — and certainly cost Venmo some users, all based on an irrelevant metric.

Without Venmo, people might revert to less secure payment options, like cash, which can be more difficult to dispute or refund in the event of a fraudulent transaction. That’s the risk of piling incompatible regulations on responsible fintech tools, like EWA apps.

If the CFPB succeeds in misapplying outdated, unrelated regulations to EWA services, the agency could end up pushing consumers into the hands of more predatory options like payday lenders.

For a better regulatory model, we can look to states like Wisconsin and South Carolina, which have recently passed EWA regulations. These states require EWA providers to obtain state licenses and undergo regular examinations by regulators. EWA apps are required to offer a free service tier and are barred from punishing customers who choose not to tip.

In contrast, the CFPB could end up causing the most harm to working-class people who are already feeling the pinch of inflation. Instead of safeguarding consumers, the CFPB's stance threatens to push them towards less secure, more costly financial products.