Financial stress can strike at any moment. For many hardworking families, a sudden expense, a medical bill, or a car repair can turn their financial stability into turmoil. Today, the true cost of emergency expenses has gone up to $1,700, up 16% from $1,400 in just a year. In response to these challenges, millions of Americans across the country have taken advantage of Earned Wage Access (EWA), a product that allows you to safely receive wages already earned but have not yet been received in their bi-weekly or monthly paycheck. Responsible companies offering EWA services have no mandatory fees or high interest rates, are non-recourse, are not priced based on risk, and don’t impact a user’s credit score, providing a safe and affordable lifeline for hundreds of thousands of Nutmeggers seeking to take control of their financial situation.
However, at the turn of the year, new guidance from the Connecticut Department of Banking wrongfully reclassified EWA as a small loan making it difficult for responsible companies to continue operation. Over 151,000 families and 1,300 businesses in Connecticut, that once relied on EWA since 2012, have lost the ability to access their own money during financial emergencies. Regulating innovation is challenging even under the best circumstances, but this is a glaring misstep. These rules don’t just have unintended consequences; they are a deliberate step backward stifling innovation and stripping away consumer choice.
Responsible Earned Wage Access simply grants employees access to a portion of their already earned wages before the traditional pay period, offering a lifeline to navigate unexpected expenses to ensure that consumers are not subjected to high overdraft fees from their banks or high-cost payday loans. In fact, A new study on EWA by the Financial Health Network found that most consumers have a positive experience with EWA. The report further noted that families plan to continue using the service and it increases their ability to pay bills on time. In 2023, many users took advantage of EWA for the first time to cover an emergency expense that compounded their daily expenses.
Now, the current bill before the Connecticut legislature has failed to take any meaningful steps to actually protect access to EWA, only allowing a narrow exception for employer-provided provided products leaving countless workers whose employers don’t partner with an EWA provider out to dry.
AFC is a standards-based organization, and we represent the largest number of Earned Wage Access (EWA) providers of any trade association. As such, we have a responsibility to the industry as a whole, but even more importantly, to the consumers they serve. EWA services are offered in both employer integrated and direct-to-consumer methods. These two business models operate within the market for a very good reason, namely, they offer consumers the opportunity to use the EWA service that fits their lifestyle best. While employer-integrated EWA providers partner with employers, direct-to-consumer EWA providers seek to assist consumers who are employed by small businesses or work as independent contractors. Ultimately, the availability of both models results in the most consumers being responsibly served by EWA.
I respect and appreciate the effort to develop legislation that adequately protects consumers engaging in EWA services. However, as written, I believe the bill would incorrectly bifurcate the industry and limit access to responsible direct-to-consumer EWA services for the very constituents this body serves, by pushing responsible providers out of Connecticut.
EWA customers come from professions that are the backbone of our country’s economy, including essential workers in healthcare, education, manufacturing, and other vital sectors like the retail and the restaurant industries. The country’s biggest employers, including Walmart, Amazon, Target, and McDonald’s offer their employees immediate access to their wages. These regulations, however, dismantle a system that has proven to be effective and is widely adopted. It’s a move that simply doesn’t align with the realities of the modern workforce.
Connecticut legislators must reconsider this legislation and provide clarity on the treatment of EWA – especially because thousands of Connecticut workers are now left with fewer options.
