Like a snowball rolling down a hill, the push to pass legislation to regulate earned wage access (EWA) providers is growing. In June 2023, Nevada became the first state to officially regulate earned wage access providers, and Missouri followed soon after. In the month of January 2024 alone, four states, Arizona (Senate Bill 1273), Florida (Senate Bill 1146), Hawaii (Senate Bill 2664), and Kentucky (House Bill 322) introduced bills to regulate earned wage access providers.
These four bills highlight the differences in how states may be preparing to regulate earned wage access, including with respect to the critical issue of whether earned wage access transactions are considered to be loans or credit. One industry trade association recently wrote a letter to CFPB Director Rohit Chopra noting this “patchwork” approach and urging the CFPB to “engage in a more substantive regulatory endeavor, such as a formal rulemaking,” that creates a “clear and consistent regulatory framework” for EWA providers.
We discuss high-level features of each of these four most recently introduced bills below.
Arizona
On January 30, 2024, the Arizona Legislature introduced Senate Bill 1273 , which, if enacted, will regulate earned wage access providers and require them to be licensed. Senate Bill 1273 would require “providers” of an “earned wage access service” to obtain a license from the Arizona Department of Financial Institutions prior to doing business in Arizona. A “provider” of earned wage access services does not include a service provider, such as a payroll service provider, whose role may include verifying a consumer’s available earnings, unless the service provider is contractually obligated to fund proceeds that are delivered as part of an EWA program. The term also does not include an employer that offers to advance wages or compensation to its employees or contractors prior to a normally scheduled pay date. The Arizona legislation would apply to providers of both employer-integrated and direct-to-consumer earned wage access services.
Senate Bill 1273 would also subject licensed earned wage access providers to disclosure and consumer protection requirements. For example, licensed earned wage access providers would be required to offer at least one reasonable option to a consumer about how to obtain proceeds at no cost and clearly explain how to elect that no cost option, and disclose all fees associated with the EWA program and the consumer’s rights under the agreement to the consumer prior to entering into an agreement. If the program solicits “tips” or voluntary gratuities from the consumer, then the provider must clearly and conspicuously disclose to the consumer immediately before each transaction that any tip, gratuity, or other donation amount is voluntary and may be zero. Providers that accept tips or gratuities must also include in their program or service contract with the consumer that any “tips” are voluntary and that whether a consumer tips (or the amount of the tip) does not affect the consumer’s eligibility for the EWA program, including with respect to the size or frequency of advances under the program.
Senate Bill 1273 would, if enacted, provide licensed earned wage access providers with a “safe harbor” from Arizona’s consumer loan, collection agency, and money transmission licensing laws when offering earned wage access services in compliance with the law, and would also provide that any fees or voluntary tips, gratuities, or donations paid to a licensee are not interest or a finance charge.
Florida
If enacted, Florida Senate Bill 1146 would create Part V of Chapter 560 of the Money Services Business provisions. Part V of Chapter 560 would be titled the “Florida Earned Wage Access Services Act” (the “Act”)(Fla. Stat. Ann. 560409 et seq.). The Act would include: (i) definitions; (ii) registration requirements; (iii) provider requirements; (iv) administrative remedies and penalties; and (v) will set forth examples of which transactions are not considered to be earned wage access services.
Senate Bill 1146 would require “providers” of an “earned wage access service” to register with the Florida Office of Financial Regulation prior to doing business in Florida. A “provider” of earned wage access services does not include a payroll provider that is not contractually obligated to fund proceeds that are delivered as part of an EWA program. The term also does not include an employer that offers to advance wages or compensation to its employees or contractors prior to a normally scheduled pay date. The Florida legislation would apply to providers of both employer-integrated and direct-to-consumer earned wage access services. Similar to the Missouri and Nevada laws, Senate Bill 1146 would also enact compliance and disclosure requirements. For example, registered earned wage access providers would be required to allow a consumer to cancel their use of EWA services at any time, without incurring a cancellation fee or penalty. Providers also would be prohibited from sharing any fees, tips, gratuities, or other charges collected from the consumer with an employer; requiring a consumer report or credit score to determine the consumer’s eligibility for an EWA program, or accept payment of outstanding amounts via a credit card or charge card.
Senate Bill 1146 specifically provides that EWA programs offered and provided by registered providers in compliance with the law would not be considered as an assignment or sale of wages, a loan, credit, or debt, or money transmission, for purposes of Florida law. In addition, the bill would clarify that the Florida Consumer Finance Act (which regulates and licenses consumer lenders) does not, as a matter of law, apply to any proceeds provided to a consumer pursuant to the Earned Wage Access Services Act, and any voluntary tip, gratuity, or donation paid by a consumer to a registered EWA provider is not a finance charge. If enacted, the Act will become effective on October 1, 2024.
Hawaii
While the Arizona and Florida bills would create a “safe harbor” for earned wage access providers by expressly precluding EWA transactions from characterization as a loan, debt, or credit for purposes of state law, Hawaii’s Bill 2664 takes the opposite approach. Bill 2664, which was introduced on January 19, 2024, would amend Hawaii’s usury law to categorize earned wage access products as “credit” and subject EWA advances to Hawaii’s usury law.
Bill 2664 would amend Hawaii’s interest and usury code to re-define a “credit” transaction to include “any sale, assignment, order, or agreement for the payment of unpaid wages, salary, commissions, compensation, or other income, including a tax refund or other expected source of funds, or any portion or amount thereof, whether earned, to be earned, or contingent upon future earnings, that is made in consideration for goods or services, or the payment of funds to or for the account of the person earning or receiving, or potentially earning or receiving, the wages, salary, commissions, compensation, or other income.” In addition, while “credit” is currently defined consistent with the federal Truth In Lending Act (TILA) and Regulation Z as “the right to defer payment of debt or to incur debt and defer its payment,” Bill 2664 would define “debt” to include any amount that a consumer agrees to repay, regardless of whether the transaction carries recourse to the consumer in the event of nonpayment or requires the payment of any charges or payments.
In addition to capturing earned wage access advances as “credit,” Bill 2664 also amends Hawaii’s usury law to impose a 12% APR limit on such advances. The bill provides that the calculation of the APR includes not only all charges that are “finance charges” under TILA and Regulation Z, but also “any amount offered or agreed to by a borrower in furtherance of obtaining credit or as compensation for the use of money,” and “any fee, voluntary or otherwise, that is charged, agreed to, or paid by a borrower in connection or concurrent with an extension of credit.”
Bill 2664 would take effect immediately upon enactment.
Kentucky
Kentucky House Bill 332 (“HB 332”) was introduced on January 22, 2024. HB 332 does not expressly require licensing or registration of earned wage access providers; instead, HB 332 contains a provision that expressly re-characterizes EWA transactions as loans and imposes fee limitations on EWA transactions.
HB 332 applies to an “earned wage access transaction,” which is defined as “[a]n advance of earned wages, salary, commissions, or other compensation for services,” or “any other advance or payment in money, funds, or credit in exchange for, or that is secured by, a sale, assignment or order for the payment of earned wages, salary, commissions, or other compensation for services[.]” HB 332 provides that any transaction that meets the definition of an “earned wage access transaction” is a loan as a matter of law, regardless of the means of collection, whether the provider has legal recourse to the consumer in the event of nonpayment, or whether the transaction requires the payment of any charges or payments by the consumer. HB 332 would, if enacted, ban the use of a “tip” model in Kentucky, as the bill would prohibit any person from soliciting or accepting any gift or gratuity in connection with an earned wage access transaction. The bill would also limit the fees and charges that may be imposed on an earned wage access transaction to $3 for the first transaction within a calendar month, $2 on the second transaction within that month, $1 for the third transaction, and would prohibit the charging or receipt of any amount on a subsequent transaction within the same calendar month.
HB 332 provides that it does not apply to consumer loans or deferred deposit transactions that are originated by licensees under the Kentucky Consumer Loan Law or Kentucky Deferred Deposit Transactions Law, as applicable.
