Earned wage access (EWA) or on-demand pay programs have been framed as a “win-win” for employees and employers.
Allowing workers to access wages ahead of a scheduled payday holds the promise of helping them alleviate financial stress. At the same time, such a benefit may fuel positive outcomes for HR departments, such as improved retention rates, surveys have suggested.
But consumer advocates warn that EWA programs can be harmful if they carry hidden fees that lead employees to take on debt. Now, more states are moving to regulate the EWA industry, with Arkansas, California, and Utah recently enacting laws intended to protect workers who use these services. Indiana Gov. Mike Braun signed an EWA bill into law on May 6.
How laws regulate EWA providers. Nine states have laws on the books regulating EWA products, with Nevada being the first state to enact such legislation, in 2023. California enacted an EWA law this past February, while Arkansas and Utah did the same in March.
Some 20 other states are considering legislation regarding EWA, according to the National Conference of State Legislatures.
Many of the laws require EWA providers to be licensed by the state in order to operate, and some require them to report annually to the state. Most state laws that have taken effect also require the providers to be transparent about any fees associated with their products, as well as offer at least one option to customers at no cost.
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The EWA industry has been supportive of laws that don’t treat these products as loans, thus subjecting them to lending laws. This is the case for Indiana’s new EWA law, which New York-based provider DailyPay applauded. In a statement, Ryan Naples, the company’s VP of public policy, said the law featured “common-sense guardrails that allow consumers and businesses to benefit.”
States legislate as CFPB is gutted. While most states have thus far steered clear from legislation that would subject the EWA industry to lending laws, the Consumer Financial Protection Bureau (CFPB) did seek to do this with an interpretative rule proposed last year. The rule stated that many EWA products can be considered consumer loans. As such, the CFPB asserted, these programs fall under Truth in Lending Act, which requires lenders to disclose charges and fees associated with a loan.
The CFPB appears unlikely to continue these efforts, however, as the Trump administration is working to dismantle the agency by laying off most of its staff.
Should states continue to pass laws ensuring protections for workers who use earned wage access, the providers that HR teams partner with will likely be subject to enhanced requirements regarding fees, tips that come from users, and licensing. Four out of five employers surveyed by ADP offered EWA as of 2022, according to a white paper published by the HR management firm.