Earned Wage Access? More like 'Online Payday Loans’, says the Federal government.

In recent developments, the Consumer Financial Protection Bureau (CFPB) has thrown its weight behind the California Department of Financial Protection and Innovation (DFPI)'s proposal to classify Earned Wage Access (EWA) products as loans. This move is a pivotal moment in the financial regulatory landscape, signaling a potential shift in how such financial products are perceived and regulated.

EWA services, which allow employees to access wages they've earned before the scheduled payday, have been touted as a revolutionary financial wellness tool. However, the classification of these services as loans will place them under similar scrutiny and regulation as traditional payday loans. This is significant because it emphasizes the need for consumer protection in an industry that has largely operated without the stringent oversight applied to more traditional financial lenders.

The CFPB's support for including tips and expedite fees in the definition of finance charges under the California Financing Law is a critical step towards ensuring transparency and fairness in the EWA sector. This approach mirrors the protections offered under the Truth in Lending Act (TILA), a cornerstone of consumer credit protection.

The anticipation of further guidance from the CFPB on the federal regulation of EWA products highlights the evolving understanding and regulation of financial innovations. This is a clear message to the industry that innovation cannot come at the expense of consumer protection.

Furthermore, customers that we talk to at Cents have repeatedly told us the same thing about EWA providers: they are predatory, employees get hooked, and they make their financial wellness problems even more acute. EWA providers have various hidden fees and requirements, like forcing consumers to tie their funds into a debit card, where the EWA provider makes money, if they’d like their pay the same day. Furthermore, the nature of EWA providers being removed from payroll systems means that employees have poor visibility into how much money they owe on their paycheck, when payday comes around. It’s not uncommon for employees to have overdrawn on their EWA accounts and end up penniless on payday.

At Cents, we have built a payroll system that does things the right way: daily pay without any loans, fees, or requirements to use an app or debit card. With Cents, employers can pay their employees the wages they work hard to earn every day.

For further information and a comprehensive analysis, refer to the original article here.