Earned wage access providers are essentially intermediaries between an employer and employee that let workers access their wages before regular pay cycles elapse. Some EWA providers charge employers a fee for the service while others charge employees, and some earn revenue through interchange fees that result from the workers using payment cards.

The industry has exploded over the past decade with more than two dozen companies now offering some variety of on-demand pay services. While it began as a service mainly for lower-income workers, it has expanded its reach in recent years with the explosion of gig workers during the COVID-19 pandemic.

Nevada is one of the first states in the nation to pass legislation creating oversight for the industry, though California is working on new rules as well and New Jersey has also considered legislation.

Nonetheless, the National Consumer Law Center opposed the legislation. “The bill would break new ground by declaring that loans made through an ‘earned wage advance’ app are not subject to Nevada’s statutes regulating credit,” the advocacy group said on its website. “The bill exempts fintech payday loans from even the minimal protections required of Nevada payday lenders without substituting meaningful protections.”

Still, EWA providers often paint themselves as a lower-cost alternative to high-interest-rate payday loans, and those industry backers of the bill pointed to the benefits EWA offers. “By enabling Nevada workers to access their own already earned wages at little or no cost prior to payday, earned wage access (EWA) provides employees a critical lifeline for these thousands of Nevadans,” they said in an undated letter of support.

Under the bill, EWA providers in the state will be subject to a state exam and audit, with a fee and levy to pay for that oversight, according to a summary of the bill. Any license applicant will also be required to submit fingerprints for a criminal background check, and participate in a state registry for such companies.

The commissioner will also be empowered to hold investigations and hearings in the event that a licensee has violated the provisions of the statute, or otherwise engaged in conduct that requires the suspension, revocation or denial of renewal for a license.

The bill creates two different categories of earned wage access providers to be subject to the new oversight, including “employer-integrated earned wage access provider,” defined as a person providing such a service with earned income data from the user’s employer or a payroll provider, and “direct-to-consumer earned wage access provider,” defined as a person who provides the service with data from a non-employer source.

The Nevada legislation also says the EWA providers are not lenders, which is an important provision in that it has been a point of controversy at times as to whether they should be subject to lending laws. Specifically, the bill says EWA services extended by a licensed provider “are not a loan or money transmission and are not subject to any provisions of existing law governing loans and money transmitters.”

The Consumer Financial Protection Bureau, the federal agency tasked with protecting consumers in the financial services realm, said last year that it would give more guidance regarding how the definition of “credit” can be applied under the Truth in Lending Act and Regulation Z. That statement from the agency came when it terminated special regulatory treatment it had previously extended to Payactiv.

That decision by the CFPB followed a statement that the agency made in January 2022 regarding legislation that was then moving through New Jersey’s legislature.

California’s Department of Financial Protection & Innovation is in the process of finalizing rules that would govern EWA providers. That state government has already largely determined that EWA advances are loans.

By Lynne Marek on June 5, 2023
Original link