HARTFORD, CT – A company that advances consumers their wages in a financial service called “earned wage access” announced Tuesday that it would create a fund to pay the banking charges for former Connecticut customers who can no longer use its services since it decided to leave the state.
The company – EarnIn – said it put $50,000 into a fund to cover overdraft charges that former customers have incurred since the company left the state on Jan. 1. Those former customers can apply to the fund for reimbursement of up to $105, the company said.
The fund is being facilitated by the Hispanic Coalition of Greater Waterbury, which is acting as the fiduciary.
“We decided to set up this fund after we noticed that our customers in Connecticut were receiving overdraft fees at a higher rate than our customers in Massachusetts,” said Ben LaRocco, senior director of government relations for EarnIn. “When we ceased operating in the state in January, we heard from our customers that they rely on EarnIn, and that they needed our help.”
The primary users of earned wage access services are hourly workers. Several large corporations such as Amazon, Walmart, and McDonald’s offer earned wage access as benefits of employment. Unlike EarnIn, these companies offer advances as payroll deductions and do not charge a fee for the service.
In 2023, the state Department of Banking issued new rules that defined a small loan as “[A]ny loan of money or extension of credit, or the purchase of, or an advance of money on, a borrower’s future potential source of money, including, but not limited to, future pay, salary, pension income or a tax refund, if (i) the amount or value is fifty thousand dollars or less, and (ii) the APR is greater than twelve percent.”
That new rule defined earned wage access (EWA) as a small loan, and made the financial transaction subject to interest rate limitations that earned wage access payments exceed. The new rules include tips, subscription fees, and expedited transfer fees as “finance charges,” that can be used to calculate APR. This change has resulted in advances from EarnIn and other EWA companies far exceeding the 12% APR that requires licensure by the state. As a result of that new requirement, EarnIn and other earned-wage access companies withdrew from the state on Jan. 1.
Earned wage access differs from payday loans in that typically, EWA does not charge interest. For example, EarnIn charges fees for what it calls its “Lightning Speed” transaction, where consumers receive their money within minutes for a fee, instead of the normal 1-2 day waiting period. EarnIn also accepts tips from consumers.
The legislature introduced House Bill 5140 earlier in the session as a compromise that would allow workers to utilize EWA services through their employer, although the service would still be classified as a small loan. The bill drew fierce opposition when it was debated in the banking committee earlier this year. EarnIn is not prohibited from operating in the state, so long as it adheres to state law covering small loans.
“Providing an exception to the state’s interest rate limits for expedited fees charged by employer-integrated lenders represents a weakening of current law,” Monica Burks, Policy Counsel for the Center for Responsible Lending, said in submitted testimony. “Additionally, the per transaction expedited fees allowed by HB 5140 are higher than what major employer-integrated lenders currently charge.”
Although the bill successfully cleared the Banking Committee in February, its passage in the legislature appears unlikely, according to LaRocco. He said that EarnIn is exploring the possibility of lobbying lawmakers to amend other bills to change the status of earned wage access companies.
“EarnIn was founded with a mission to empower and uplift our nation’s workers,” said Ram Palaniappan, CEO of EarnIn in a statement. “Although EarnIn is currently unable to provide EWA services to our Connecticut-based community, I could not turn my back on them. This partnership is just one way we’re maintaining our commitment to helping people achieve financial independence while we continue to advocate for responsible regulations through the state legislature.”
Regulation of EWA services has been gaining traction over the last year. In January, four states – Arizona, Florida, Hawaii, and Kentucky – introduced laws to regulate the practice. Massachusetts followed suit in March. They join Nevada and Missouri as states that passed related regulations in 2023.
EDITOR’S NOTE: This story has been updated with additional context for clarity.
