Aaron Marienthal is general counsel at earned wage access provider Payactiv and Molly Jones is vice president for government affairs at the San Jose-based company.

A payroll innovation called earned wage access (EWA) is rapidly catching on among employers, enabling employees to have on-demand access to their already earned wages – bypassing monthly or bi-weekly payroll cycles. This can be a lifeline for workers trying to make ends meet amid persistent inflation, soaring housing costs, and workforce disruptions.

Policymakers are considering how to create regulatory frameworks that codify important consumer protections for these employees, while at the same time allowing the industry flexibility to continue to innovate and grow.

Last month, then-Arizona Attorney General Mark Brnovich released what is the first public Attorney General opinion on earned wage access (EWA) products. The opinion unequivocally confirms that non-recourse EWA products are not considered consumer loans and are not subject to licensure as commercial lenders in Arizona. 

Indeed, being non-recourse is central to most EWA programs. This ensures that providers are not able to pursue users or impact their credit, and it protects consumers from activities associated with debt collection. The Arizona decision is in line with decades of decisions across the country that have found that non-recourse products are not loans.   

The opinion also explains that even if these products were loans, they also would not be subject to Arizona’s lending laws because they do not involve a finance charge. While “finance charge” is a term of art, it is a key component in most recourse lending frameworks.

At its core, a finance charge is simply a charge in exchange for a loan, and most loan products that incur a finance charge are regulated by these various lending frameworks. The opinion found that typical EWA fees do not meet the definition of finance charge.

While the opinion does not address any specific EWA programs by name, several providers like Payactiv fit squarely within the Arizona Attorney General’s framework by being both non-recourse and free of any finance charges, offering users multiple free EWA options and only charging for an expedited delivery service.  

As the first public attorney general statement on EWA, the opinion reinforces long-standing interpretation of EWA programs and provides welcome clarity for employers interested in offering their employees on-demand access to their earned wages without steering them toward lending products. 

While the Arizona Attorney General only analyzed Arizona law, the text of the Arizona statute at issue is similar to other laws that regulate lending.

As we look ahead to upcoming legislative sessions in all 50 states and potential new guidance from the Consumer Financial Protection Bureau, the opinion demonstrates how states can provide straightforward clarity for EWA providers and businesses alike, helping consumers along the way.

By Aaron Marienthal and Molly Jones on Jan 24, 2023
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