The Financial Technology Association (FTA), a trade association representing fintech industry leaders, has urged the California Department of Financial Protection and Innovation (DFPI) to ensure Californians have access to their earned wages.
Earned wage access (EWA) enables consumers to access their already earned wages, helping them smooth out cash flow between payroll cycles, which can be as infrequent as biweekly or monthly, and avoid traditional high-cost and high-interest credit products. In a survey of almost 5,000 EWA customers from California, 93 per cent had a greater sense of financial control after using EWA. Ninety-one per cent also said they understood how the service works.
The DFPI is currently considering new requirements for earned-wage providers in California. In light of this, FTA has expressed considerable support for the development of an EWA registry. It hopes this would bring providers into a regulatory framework; while enabling the DFPI to learn more about how EWA products serve the needs of Californians.
FTA is also backing consumer-friendly disclosure requirements, including clear disclosure of all fees, the 100 per cent voluntary nature of any tip, not charging late fees, interest, or other penalties, not requiring a consumer’s credit score to determine eligibility, and not reporting to a credit reporting agency or debt collector.
Penny Lee, president and chief executive officer of the Financial Technology Association, explained the importance of EWA for consumers. Lee said: “Employees want pay flexibility so they can take care of bills on time, avoid overdraft fees, and manage their finances with confidence. We urge California to craft rules recognising earned wage access as a consumer-friendly alternative to high-interest credit products.”
Getting earned wage access in California right
While the DFPI’s considerations look like a positive step forward, FTA has revealed concerns that the DFPI’s current proposal would inadvertently stop innovation and deprive consumers of a valued financial tool.
Specifically, FTA has urged the DPFI to recognise that earned wage access products are not loans or credit, in line with assessments from other federal and state government entities. Unlike a loan product, EWA services never charge interest and are non-recourse, meaning consumers have no legal obligation to repay an advance. Customers can cancel the service at any time without penalty.
FTA also urged the DFPI not to classify gratuities, tips, and other voluntary payments as ‘charges’, as such a distinction would go against legal precedent and limit consumer choice.