Earned Wage Access Products (CRS Report for Congress)
| Release Date |
July 31, 2024 |
| Report Number |
IF12727 |
| Report Type |
In Focus |
| Authors |
Paul Tierno; Karl E. Schneider |
| Source Agency |
Congressional Research Service |
Summary:
For many people, the need for cash in between paychecks is
a substantial burden. Earned wage access (EWA) products
have generally been developed by technology-focused,
nonbank financial technology companies (or “fintechs”) to
provide wages to workers upon demand. EWA products
may help individuals manage their personal cash flows
arguably at a lower cost and with greater flexibility relative
to traditional financial products, but they may also
introduce debt sustainability risks. Whether an EWA
product should be considered credit or a spot payment for
wages an employee already earned, and what consumer
protections should apply, are debated policy issues.
EWA is currently regulated by a growing patchwork of
state laws, with dramatic differences across the country.
Meanwhile, firms offering EWA products may structure
them differently for various reasons, including to avoid
being regulated as consumer credit. Both consumer
advocates and EWA providers have called for a consistent
federal framework, albeit with different levels of desired
regulatory scrutiny. In July 2024, the Consumer Financial
Protection Bureau (CFPB) issued a proposed interpretative
rule arguing that EWA products constitute credit and
require Truth in Lending Act (TILA; P.L. 90-321, 15
U.S.C. §§1601 et seq.) disclosures.
Legislation related to EWA that would supersede the
CFPB’s rulemaking has seen action in the 118th Congress.
H.R. 7428 would exempt EWA from being classified as
credit subject to TILA disclosures, mandate other disclosure
requirements, and require EWA firms to provide fee-free
versions of their services. Supporters, including EWA
providers, argue that this law would provide needed clarity
to the market. Critics, including consumer groups, contend
that exempting EWA from TILA hides the true cost of
credit.
