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1 [1] (July 31, 2024)

handle is hein.crs/goveqeq0001 and id is 1 raw text is: Congressional Research Service informing the legislative debate since 1914 July 31, 2024 Earned Wage Access Products For many people, the need for cash in between paychecks is a substantial burden. Earned wage access (EWA) products have generally been developed by technology-focused, nonbank financial technology companies (or fintechs) to provide wages to workers upon demand. EWA products may help individuals manage their personal cash flows arguably at a lower cost and with greater flexibility relative to traditional financial products, but they may also introduce debt sustainability risks. Whether an EWA product should be considered credit or a spot payment for wages an employee already earned, and what consumer protections should apply, are debated policy issues. EWA is currently regulated by a growing patchwork of state laws, with dramatic differences across the country. Meanwhile, firms offering EWA products may structure them differently for various reasons, including to avoid being regulated as consumer credit. Both consumer advocates and EWA providers have called for a consistent federal framework, albeit with different levels of desired regulatory scrutiny. In July 2024, the Consumer Financial Protection Bureau (CFPB) issued a proposed interpretative rule arguing that EWA products constitute credit and require Truth in Lending Act (TLA; P.L. 90-321, 15 U.S.C. §§1601 et seq.) disclosures. Legislation related to EWA that would supersede the CFPB's rulemaking has seen action in the 118th Congress. H.R. 7428 would exempt EWA from being classified as credit subject to TLA disclosures, mandate other disclosure requirements, and require EWA firms to provide fee-free versions of their services. Supporters, including EWA providers, argue that this law would provide needed clarity to the market. Critics, including consumer groups, contend that exempting EWA from TILA hides the true cost of credit. Earned Wage Access Overyw EWA products allow employees to access portions of their earned income in advance of their regularly scheduled pay dates. EWA products might enable consumers to access wages across pay periods and more easily deal with unexpected expenses. Some EWA products are employer- integrated, meaning EWA companies work directly with employers to access their time management and payroll software. Others are direct-to-consumer, meaning the employer is not involved in the transaction. EWA is currently regulated by a patchwork of state laws and regulations, with requirements differing. In the employer-integrated model, after the EWA provider tabulates the number of hours worked, an employee accesses earned income by request through his or her employer. In this version, an EWA vendor may use its own funds or may require an employer to provide funds for the advance. Then, the EWA vendor typically collects funds through a payroll deduction to reimburse the amount advanced. While firms that partner with employers usually offer both free and fee-based options, the CFPB found that 82% of those transactions had fees, including expedited transfer fees or periodic fees to use the services. From 2020 to 2022, employer-integrated EWA nearly doubled, and in 2022 this product represented an estimated 71% of the total EWA transaction volume. Direct-to-consumer products provide employees with advance access to part of their wages without involving their employers. Direct-to-consumer providers use their own funds to make the advance and typically recover funds by debiting users' checking accounts. Users generally pay subscriptions or tips for these services. In both models, firms may charge fees for expediated access to funds. In a July 2024 report, the CFPB estimated that in 2022, more than 10 million workers used employer-integrated and direct-to-consumer products totaling $32 billion. According to a 2022 survey, 70% of middle market companies offer EWA products to some staff. Other research finds that firms perceive EWA as a recruitment and retention tool and that younger employees expect to have access to on-demand earned wages. According to the CFPB, in 2022, among employees who have access to EWA, 50% have used the products. Roughly half of those users used EWA at least once a month (see Figure 1). Figure I. EWA Transactions per Year: Employer- Integrated Firms 1600.000 1,400,000 1200,000 z 400,000 200,000 25.3% IS S% ,11 102% - 7.2% 1 -3 4 - 8 9-12 13 -18 Number of transactions per year Source: Consumer Financial Protection Bureau. 27.6% 25+ 19 24 Poly Issues The CFPB has the authority to write regulations, enforce laws, and supervise nonbank lenders regarding consumer protection and data security. Some of the key policy issues relating to EWA programs are discussed below.

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