Faced with growing debt, three-quarters of American workers want to get paid every day (2024)

These programs, called earned wage access (EWA), allow employees to collect their pay at the end of each work day. Large corporations like Walmart and Amazon have already begun offering internal EWA programs for their employees, and the Consumer Financial Protection Bureau announced last month that it would soon issue federal guidance on EWA. The growing momentum around EWA is an encouraging sign for advocates, who say these programs could help dozens of Americans who run out of money before the end of the standard two-week pay period to cover everyday expenses like food, gasoline and utilities. bills.

But to reach the mass U.S. market, EWA advocates first have to convince regulators that they are different from payday lenders and that the EWA is a tool to help Americans get outside of debt, and not the other way around.

EWA and payday loans present differences. Many EWA providers do not charge interest to employees who collect payment early from an employer and instead make money from contracts with companies, similar to the way services like ADP operate. But one factor working against widespread adoption is that some companies that call themselves EWA providers, such as MoneyLion and EarnIn, charge optional consumer fees for the service. These fees have drawn criticism and comparisons to payday lenders.

“We view these products as payday loans with a fintech veneer,” said Andrew Kushner, senior policy advisor at the Center for Responsible Lending, in an interview with CBS 8 San Diego.

However, EWA has been successfully implemented in Europe and the UK: 97% of participating British companies said EWA programs improved their employees’ sense of financial security.

On this side of the pond, however, it has been a harder sell. About 76% of American employees say they want to be able to collect their salaries daily, but consumer lending regulations work against EWA programs, even if they don’t charge interest.

Short-term consumer loans don’t have the best reputation: High-interest payday loans burst onto the scene in the 1990s, taking advantage of a regulatory loophole to grow into a $9 billion industry that, As has been shown, it sends users, who tend to have low interest rates. income, in permanent spirals of debt. The CFPB proposed rules at the federal level in 2017, but states have assumed most of the regulatory responsibility, creating a patchwork of state-level laws that make it difficult for EWA providers to obtain approval at the national level.

But that could change, as EWA payroll providers call for regulations at the federal level that would allow widespread adoption of what they call a “no-brainer.”

“EWA is like a vaccine for financial well-being,” said CloudPay vice president Borja Pérez in an interview with Fortune. “We’re just trying to empower employees to really manage the disease of financial stress.”

As household debt levels reach record highs, zero-interest EWA programs could provide relief to the more than 60% of Americans living paycheck to paycheck. EWA gives employees a way to access compensation as soon as they earn it, rather than having to wait several weeks for payday or incurring interest on short-term loans or credit card bills.

Many payroll platforms that support EWA, such as CloudPay, work by giving employees the option to redeem payroll deposits at the end of each work day. Employees with access to these types of plans do not pay fees or interest to use the service. According to BLS data, more than 70% of Americans get paid every two weeks or weekly. Proponents of the EWA argue that receiving daily pay is not only a useful benefit, but should be an employee right, and it is unfair that workers have to wait weeks to receive compensation for their work.

“This isn’t a short-term loan or anything like that: it’s money you’ve already earned. So why don’t we make this available to you in your pocket? Perez said. “The money you’ve already earned? Let’s put it at your disposal. It’s as simple as that.”

Some third-party EWA apps charge fees, often for instant withdrawals that users can avoid if they are willing to wait a few days for transactions to post. MoneyLion charges instant transfer fees ranging from $1.99 to a maximum of $9 depending on the size of the withdrawal, and EarnIn charges between $1.99 and $3.99.

Several states have begun taking legislative action against the EWA in recent months. California lawmakers are mulling a proposal to require EWA providers to register with the state and cap their rates, and Connecticut instituted a similar proposal last September. But Montana’s Attorney General stated last month that EWA should not be subject to lending regulations, and Nevada and Missouri have similarly distinguished between EWA and loans. This regulatory inconsistency from state to state has led EWA supporters to call for the federal government to intervene.

“(EWA) should be regulated at the federal level,” Pérez said. “Payday loans and things like that…are charging employees crazy interest rates. We are not in that category. We are not lending money. This (regulatory environment) is creating competitive advantages from state to state because in one state employees will have the luxury of this benefit, but in another they will not. This is a challenge. “We don’t find this in our other (international markets).”

CloudPay operates in 40 countries, and its global usage history data suggests that one of the biggest fears about EWA – that workers will cash in their entire paycheck every day, creating cash flow problems for their employers – is overblown. CloudPay says the average EWA user only withdraws about 5% of their base salary before their regularly scheduled biweekly or monthly payday.

And most withdrawals are not for round numbers, but for specific values, down to the penny, suggesting that employees are using EWA to pay bills and avoid paying interest on other debts, rather than spending wildly. Most CloudPay users withdraw between $85 and $135 a month, and employees making less than $30,000 a year use EWA the most, according to data from internal company users.

“Think about Uber: in the United States it became very popular, but they tried to go to Europe and faced many legislative challenges. But now, guess what? You have Uber in all the cities of Europe,” Pérez said. “For (EWA), it’s kind of the other way around… It’s a no-brainer.”