EWA, as detailed by PayrollOrg, is a relatively new payment method that allows workers to access their earnings ahead of their regular payday. However, the concept raises several important questions about when exactly a workplace wage payment occurs with respect to “employment tax withholding, depositing, and reporting purposes.” Some have drawn comparisons between EWA and payday lending schemes that wind up hurting consumers more than helping them.
After the California Department of Financial Protection and Innovation’s (DFPI) proposal to treat fintechs offering EWA as lenders, the AFC urged the agency to rethink its classification. Per DFPI, the term credit applies to “providers in the earned wage access and income-advance industry, who often limit their recourse if they are unable to collect and who sometimes allow consumers to cancel collection entirely.” Data shows that consumers made the transactions whole 97% of the time.
AFC, though, challenged the notion in a recent letter to the California agency.
“Consumers should have access to wages they have earned when they need it,” said Phil Goldfeder, chief executive officer of AFC, in a statement. “When offered responsibly, EWA is a critical tool for families to avoid predatory financial products. We thank DFPI for their commitment to a comprehensive dialogue and urge them to design regulatory standards that recognizes the critical value of responsible and transparent companies.”
From Twitter
PayrollOrg @PayrollOrg ·May 26
"Join #payroll expert Pete Tiliakos on June 28 as he hosts a fun and informative discussion that sorts “the fact from fiction” of earned wage access (EWA) solutions. https://hubs.li/Q01Rl9Sz0 Sponsored by @dailypay."
Financial Health Network data cited by the AFC indicates the concept is rapidly gaining traction, and in 2020 approximately 55 million early wage transactions totaling $9.5 billion were executed. Further, close to 15% of employers were reported to offer the new benefit.
The AFC contends this type of wage plan should not be treated like traditional credit, as there are no credit checks associated with its implementation, no impact on users’ credit scores and it does not employ penalties and late fees associated with lending. Costs associated with the early disbursals are directly deducted from employee paychecks or debited out of the employee’s account, notes the AFC.
From Twitter
Techpoint Africa @TechpointAfrica ·May 30
"Ugandan fintech startup, Zofi, has received $1 million to expand its earned-wage access. With more than 3,000 employees served since 2021, Zofi hopes to extend its services to more of the 20,000 employees on its waitlist. https://techpoint.africa/2023/05/29/zofi-cash-1-million-debt-advancly/"
“Industry survey data demonstrates that EWA, for example, helped consumers avoid and replace payday loan fees, bank and credit union overdraft fees, bill late fees, and loan payment late fees,” AFC comments. “This is why we strongly believe that allowing workers to access their wages early is an option that California consumers deserve. Any data analysis related to EWA should take into account these important savings, as well as other key features, like low fees and costs compared to traditional lending products.”
