Five companies in the early wage access industry have reached landmark agreements with California regulators that will govern their operations in the nation’s largest state.
The voluntary pacts give the firms, which to date have been largely unregulated, greater certainty about their ability to offer products to the state’s nearly 40 million residents. In exchange, the companies agreed to allow regular examinations, share quarterly data with the regulators and abide by certain limits on their pricing. The deals do not force any changes to the firms’ existing revenue models.
“These first-of-their-kind agreements reflect the type of balanced approach and oversight we strive to provide,” Manny Alvarez, the commissioner of the California Department of Financial Protection and Innovation, said in a press release Wednesday.
The department plans to use the data it gathers from the five companies to help inform the development of a regulatory scheme for the entire, fast-growing industry.
The agreements come more than a year after
The five companies that signed the deals have business models that vary substantially, and some of those approaches have proven more controversial than others.
Three of the firms offer their products in partnership with employers under deals in which workers agree to have their prepaid wages deducted from their next regular paychecks. The other two firms offer their services directly to consumers under arrangements that have sparked greater opposition because they bear a closer resemblance to payday loans, though typically at a much lower cost.
Palo Alto, Calif.-based Earnin is one of the companies that offer services directly to consumers. The firm does not charge a fee when its customers access up to $100 per day, but users can choose to pay a gratuity for the service.
Earnin’s business model
Under Earnin’s agreement with California regulators, voluntary gratuities do not count toward the calculation of an APR.
Earnin also agreed not to make product offers conditional on the decisions that customers make about whether to tip. And the company pledged to provide information to California regulators about how much money its customers are paying in tips.
“Earned wage access is a critical tool for more than 100,000 hard-working Californians, who are living within their means and trying to meet their financial obligations but facing bills that won’t wait on their paycheck,” an Earnin spokesman said Wednesday in a written statement that expressed support for the approach taken by California regulators.
Also reaching an agreement with California regulators was New York-based Brigit, which offers cash advances directly to consumers as part of a plan that carries a $9.99 monthly fee. On its website Brigit notes that a one-month subscription fee is far less costly than a $34 overdraft fee.
While Brigit’s agreement with California officials states that its APRs cannot exceed 36%, it also makes clear that subscription fees are not included in the calculation. Brigit CEO Zuben Mathews praised California officials for what he called their "monitoring-first approach" and encouraged other regulators to follow that example.
The early-pay providers that partner with employers also price their products differently from one another. For example, Minneapolis-based Branch does not charge for instant transfers of earned wages onto its debit card, though fees of up to $4.99 may apply to customers who choose to use an external bank account.
“This agreement shows that protecting consumers and fostering financial innovation don’t have to be mutually exclusive,” Branch founder and CEO Atif Siddiqi said in a written statement.
San Jose, Calif.-based PayActiv charges a $1 fee when employees access earned wages, with fees capped at $5 during each two-week pay period. That pricing model is reflected in its agreement with California regulators, which states that the company’s fees and charges cannot exceed $5 over two weeks.
Unlike the four other companies that signed agreements in California, PayActiv has also received approval for its approach from the Consumer Financial Protection Bureau. Under
David Reidy, PayActiv’s chief legal officer, said in an email Wednesday that the recent actions by regulators in both Sacramento and Washington signal a growing consensus that earned wage access is an important consumer innovation.
The fifth company that forged an agreement with authorities in the Golden State is Oakland, Calif.-based Even. The firm’s general counsel, Priya Pai, said in a written statement that the data each of the five companies provide will allow California regulators to understand the potential benefits and risks in each firm’s approach.
The California Department of Financial Protection said in its press release that the agreements will allow the five companies to continue operating in California, in advance of possible registration under state law.
More agreements between the California Department of Financial Protection and earned wage access providers may be forthcoming soon. “We are actively in discussions with other companies,” said department spokesman Mark Leyes.
This story has been updated to add a comment from Brigit CEO Zuben Mathews.
