Earned wage access providers lauded Kansas Gov. Laura Kelly enacting a new law last week that will impose a licensing system for companies that enable workers to tap their compensation before payday. 

The law, which the Democratic governor signed on Friday, makes Kansas the fourth state to enact a law supported by the industry and opposed by consumer advocates who have called for a more stringent standard. Companies that have backed legislation like the Kansas bill include Payactiv and DailyPay.

Kansas “recognizes EWA as a unique financial services product requiring a tailored oversight system, and confirms that EWA is neither credit nor subject to lending requirements,” Payactiv said in a Tuesday statement.

The number of EWA providers has surged in recent years, with dozens entering the market. The companies employ an array of business models, with some working through employers and others offering services directly to employees. EWA providers also impose a variety of fees, and sometimes charge interest.

The Kansas bill, HB2560, received bipartisan support and was passed in the state legislature by a large majority vote, with the Senate approving a conference committee version of the bill 34-5 and the House passing it 119-4.

“This regulatory framework was developed collaboratively by industry stakeholders, in consultation with our Office of Banking Commissioner,” Republican Rep. Nick Hoheisel said by email earlier this month before the bill was signed by the governor. “After more than a year of negotiation, they reached a consensus that led to the formulation of HB 2560.”

Last month, Wisconsin became the third state, following Nevada and Missouri, to pass a law calling for earned wage access providers to be licensed, but it kept EWA payments from being labeled as loans.

EWA providers have backed state legislation across the country that avoids imposing existing lending regulations on the industry. Meanwhile, their consumer advocate opponents, such as the National Consumer Law Center, have argued that EWA services often subject employees to onerous fees or interest.

“The Kansas bill, like the Wisconsin, Missouri and Nevada ones, follows the pattern of states that have no interest rate caps and that allow high-cost payday loans authorizing a new form of high-cost lending,” NCLC’s associate director, Lauren Saunders, said by email earlier this month in commenting on the bill before it was signed by Kelly. “It is no model for a state that has and cares about strong consumer protection laws.”

A group of EWA companies and the American Fintech Council, a trade group that works with those interests, earlier this month urged Kelly in a letter to sign the bill, calling out the benefits of the legislation. 

“The new law establishes clear standards for EWA services regulated in a manner that reflects the nuances and optionality of the EWA industry while also protecting consumers from irresponsible actors,” the council’s CEO, Phil Goldfeder, said by email Thursday.

California and Connecticut have taken a different tack, moving to subject EWA payments to lending laws that have provisions for policing interest rates and dictating transparency. 

At the federal level, the Consumer Financial Protection Bureau said in December that it supported the California Department of Financial Protection and Innovation’s approach to EWA and signaled it would issue a policy on EWA sometime soon, but so far it hasn’t.

By Lynne Marek on April 25, 2024
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