When Tenisha James, a 47-year-old single mother of three from Waterbury, Connecticut, found herself in a tight spot, she turned to earned wage access to help pay her bills.
"I was going through financial hardship," James said. She had just moved into a new apartment and was working as a contractor for $20 an hour. "I don't have good credit. I was struggling with that. I have student loans, and I don't really have anyone to reach out to [or] depend on, family-wise. So I started looking into other alternative methods."
James tried out a number of earned wage access products before settling on EarnIn, a Palo Alto, California-based, direct-to-consumer provider of wage advances. "The biggest thing that it helped me do was get back on track with my credit, because I could manage my bills as I needed them, rather than having to have them be late," she said.
But access to EWA in Connecticut ended in January 2024, when the state's regulator recategorized EWA as a small-dollar loan. As a result, EWA providers stopped offering the service.
"I had to pick up a seasonal part-time job with Amazon [to make ends meet]," James said.
James' household is one of millions of American households who use earned wage access as a bridge between paydays. Nearly a quarter of the 137 million households in the U.S. live paycheck to paycheck, according to an
While EWA can be a lifeline for workers who live paycheck to paycheck, some states and consumer advocacy groups are concerned about whether these products contribute to users' aggregated debt and hurt their chances for long-term financial well-being.
As a result, EWA is shaping up to be one of the most divisive financial products since payday lenders burst onto the scene in the 1990s. Providers are fighting for more lax legislation as states begin to roll out the first set of laws that regulate the product.
The controversies around EWA is also dividing consumer advocacy groups who usually align on policy but are now facing off over whether it should be regulated like other credit and loan products or if they should have their own rules carved out in states' statutes.
Opponents of EWA point to shady practices such as asking customers to provide a voluntary "tip" for services rendered, lackluster disclosure requirements and expedited-transaction fees as reasons to regulate the product like a traditional loan. Proponents, however, argue that EWA provides cash-strapped consumers a better alternative to high-interest credit products such as auto title and payday loans.
Diverging opinions
Chicago-based consumer advocacy group Woodstock Institute has
"A lot of advocacy organizations and our peers — where in 98% of the time we're in perfect agreement — they say [EWA] is bad," Woodstock Institute President and CEO Horacio Méndez said. "We never really considered EWA to be one of the bad players. We felt that there needed to be controls to be able to make sure that this product wasn't predatory. But the product in and of itself seemed like something that was being responsive, so long as things like fees or the expedited nature of delivery were voluntary."
Woodstock has been working closely with the American Fintech Council — an industry trade association that counts EWA providers DailyPay, EarnIn, MoneyLion and
"We've been talking to a lot of EWA providers … where we wanted a seat at the table to be able to understand the industry, but also to be able to have direct access to them when we saw issues that we wanted addressed," Méndez said.
Much of what Woodstock wants regulators to mandate is disclosure-related, he said. Tips should default to zero, and disclosures should be present that outline exactly how much the advance costs.
"We didn't want to throw the baby out with the bathwater and say the entire product is bad," Méndez said. "Our primary area of disagreement is that the tip, if it's truly voluntary, should not be a finance charge."
Similarly, an expedited delivery fee — so long as there was a free option available — shouldn't be considered a finance charge, he said.
For their part, trade organizations such as AFC and the Financial Technology Association, which also counts DailyPay, EarnIn and MoneyLion as members, are in favor of established licensing and disclosure requirements but maintain that EWA should not be regulated with other credit products.
The trade organizations point to the fact that EWA does not require credit checks, does not assess fees based on creditworthiness and that it is nonrecourse as evidence that EWA should not be considered a loan.
"Getting paid once or twice a month doesn't work for most Americans, and earned wage access gives people a no-cost option to tap into their already earned wages," said Miranda Margowsky, head of communications at the FTA. "We support state and federal legislative efforts to appropriately define EWA as a non-credit product and establish a licensing and disclosure regime that provides clarity to the industry and benefits EWA users."
AFC maintains that it is not only representing industry, but consumers as well, said Phil Goldfeder, CEO of the trade organization. "We also think we have a responsibility to represent the consumers that our members are serving," he said.
But consumer advocacy groups disagree, pointing to the fact that many direct-to-consumer EWA providers have direct access to consumer's bank accounts to make withdrawals on payday, which they say is, in fact, recourse.
More consumers and small-business clients are clamoring for earned wage access, as states step up regulation and a CFPB interpretive rule hangs in the balance.
"This idea the industry really leads with that their products aren't loans because they're not recourse, is a legal fiction," said Andrew Kushner, senior policy counsel at the Center for Responsible Lending.
CRL is particularly concerned about direct-to-consumer EWA providers because they have direct access to users' bank accounts. "I think overdraft is a big concern with all EWA products, whether they're employer integrated or not, but it's a particular concern when the transaction itself — the EWA loan — can cause an overdraft when there's insufficient funds to pay back the advance on payday," Kushner said.
CRL also pushes back against industry's argument that consumers are just accessing their own wages. "[The argument] is that they're borrowing, in essence, from their future self, not the company. But that's not true, because these advances are funded by companies."
Loan stacking, or the practice of applying for multiple loans or lines of credit at the same time, is another concern for consumer advocacy groups, Kushner said. In fact, one CRL study conducted in October 2024 called
For 33% of EWA users, 80% or more of the advances they took out were followed by reborrowing within two weeks, according to the study, which was conducted in collaboration with Saver Life, a nonprofit organization based in California. CRL analyzed more than 210,000 EWA transactions from over 6,000 users.
"What we found in this report in particular is that many consumers are getting trapped in a cycle of debt because they are taking out a loan on one occasion that's creating a gap in their finances, and so when they go to repay at the end of their pay cycle, they are re-borrowing again," said Lucia Constantine, a senior researcher, at CRL.
Another area of disagreement between Woodstock and other advocacy groups are interest rate caps. Méndez, a former banker, contends that interest rate caps should be excluded from EWA calculations.
"The industry ramifications of what it could mean in a place like Illinois, which has a 36% all-in rate cap for consumer loans, that would basically kill EWA in Illinois [and] then would put people into an even worse position of having to go somewhere that could cost them a lot more," Méndez said.
But other consumer advocacy groups maintain that the charges consumers incur when using EWA can amount to north of 300%, said Nadine Chabrier, senior policy counsel at CRL.
In fact, an
"Everyone understands what an APR is," Chabrier said. "And that's what we really want and need consumers to have: Information that shows them this isn't a free product, and that this is actually quite an expensive product."
Close ties to banks
Méndez and Woodstock have had to contend with accusations that the organization has a conflict of interest in its consumer advocacy policy due to the high concentration of funding from banks.
Woodstock counts Capital One, Fifth Third, Huntington,
Woodstock also works with EWA providers directly. Woodstock counted EarnIn as a key donor in 2023, and in late January, it signed an agreement with DailyPay to provide technical assistance to the company to "encourage their products and services to not be predatory and to responsibly meet the needs of low- and moderate-income individuals," Méndez said, noting that Woodstock does not lobby on behalf of DailyPay, or provide any consulting services to any of DailyPay's lobbyists.
"Woodstock's interaction with policymakers, if any, shall be for the purpose of policymaker education," he said.
For its entire 52-year history, Woodstock has been funded primarily by banks, Méndez said. In 2021, it raked in $978,551 in contributions and grants, according to the most recent 990 filings with the Internal Revenue Service. Nearly half — 47% — of that funding came from banks.
That share has been relatively consistent in the three years that followed: Last year, about 54% of the organization's funding came from banks; in 2023, 55% of its funding came from banks; and in 2022, 51% of its funding came from banks.
Méndez said his banking experience makes Woodstock better equipped to work with financial institutions. "I think one of the reasons also we've been able to do a little bit more with financial institutions over the last few years is, I know all these people," he said. "What I've been spending a lot of my time on, with regard to working with other organizations, especially nonprofits, is how to make a better ask of financial institutions."
More state legislatures are exploring how to regulate earned wage access products, and interest rate caps are central to that discussion. New York state's pending legislation is taking a novel approach.
Woodstock isn't the only consumer advocacy organization that works directly with financial institutions to better communities. The National Community Reinvestment Coalition, for example, has worked with 19 banks since 2016 on community benefit agreements, according to its website.
The Center for Responsible Lending counts Self-Help Credit Union and Self-Help Federal Credit Union as an affiliate, according to its website, but has not received any funding from the financial institutions between 2018 to 2021, said Alfred King, a vice president at the CRL. Both credit unions are classified as a Community Development Financial Institution by the Treasury Department.
But Woodstock's position on EWA has caused it to lose some of its nonbank funding. Last September, the Americans for Financial Reform Education Fund, a nonpartisan, nonprofit coalition of approximately 200 consumer, labor and special interest groups, terminated the second half of a $25,000 grant in response to Woodstock's stance.
"We're still doing an awful lot of work with [AFR] on other issues," Méndez said. "But this EWA thing, I think it just crossed a line for them internally, where they said we just don't feel comfortable moving forward with this relationship. My expectation is that that's temporary."
Americans for Financial Reform spokesman Carter Dougherty declined to comment on the reason it cut funding to Woodstock or the nature of the two organizations' relationship going forward. "While we respect Woodstock's work, we believe that workplace payday loans — so-called earned wage access apps — should be regulated as loan products," he said in an email.
But what is it about EWA that has caused such a rift between once-aligned consumer groups? David Silberman, a senior advisor at the Financial Health Network, said one of the issues with EWA product regulation is that there are two different business models that are not formally differentiated: direct-to-consumer advances and employer-integrated advances.
Direct-to-consumer advances, such as EarnIn and MoneyLion, offer EWA separate from employer's payroll, whereas EWA providers such as DailyPay and PayActive only offer the service to consumers if they are integrated with the client's employer.
"I think that EWA and direct-to-consumer advances are two discrete products which often get conflated in public discussions," Silberman said. "If we talk about EWA, by which I mean products where the provider of funds obtains data showing how much an individual actually earned and where the recourse is solely to the paycheck, is a different product from the products where the providers are making a prediction of how much you have earned or will have in your bank account coming to close next pay period and where the access is to the bank account."
Moreover, there are two primary reasons that consumer advocacy groups are split on the issue, Silberman said.
The first is a pragmatic reason. "The people who are using these products, EWA and direct to consumer advances, they obviously are facing a liquidity problem," Silberman said. "This is the most vulnerable segment. It's the segment who uses payday loans, the segment who uses overdraft, and so the question of how you serve that population is an important one on which there are divergent views."
The second reason is more ideological. "For BNPL, no one doubts that it's credit, whereas EWA, the claim is it is not credit, and that is an important conceptual issue for some consumer advocates, because there's a lot of new products where claims are being made that they are not credit," Silberman said, pointing to income share agreements in the student financing space and merchant cash advances.
"Maintaining the principle that a loan is a loan is a loan is an important issue for consumer advocates," he said.
DailyPay, an employer-integrated EWA provider that counts Target, Hilton, McDonalds, DollarTree/Dollar General and Duracel as clients, believes that the industry wouldn't be so divisive if everyone had transparent usage data, said Jared DeMatteis, the company's chief legal and strategy officer.
"With the consumer advocacy groups there's a lot of partisanship," he said. "And that's fine, but I think people deserve flexibility and the ability to make decisions for themselves. We're in this point in life where a lot of stuff happens instantaneously — on demand. Flat tires or medical emergencies don't happen on a two-week cycle. Why is pay and getting your paycheck the only thing that happens on a two-week or monthly cycle? It just shouldn't be that way."
One slightly different model that could satisfy both trade organizations' and consumer advocacy groups' demands comes from CloudPay, a global payroll provider operating in 140 countries.
CloudPay offers EWA access to employees that is employer-funded and directly integrated with the payroll system, said Borja Perez, vice president of product management. That eliminates the chance that a worker can overdraft due to a wage advance, because it comes directly out of the payroll calculation, similar to other employer-integrated models.
Where it differs is in the fee structure: Employees don't pay a fee, rather, the employer pays a transactional-based fee each time an employee requests earned wages in advance, similar to the fee it pays when it initiates payroll.
"This is a pre-funded service, which means that the employers need to put money into an account that we tell them, so all the requests that are coming from the employees, that money is deducted from [the account]," Perez said.
Regulatory patchwork
A myriad of conflicting state regulations coupled with the absence of any unifying federal regulation are exacerbating the divide between consumer advocacy groups and earned wage access providers.
Kansas, Missouri, Nevada, South Carolina and Wisconsin require EWA providers to be licensed but do not classify the product as a loan. Connecticut, meanwhile, has classified the product as a loan, a move that has driven providers out of the state. California also planned to
At the federal level, the Consumer Financial Protection Bureau took steps last September to
There is also a federal bill,
That bill would require EWA fintechs to provide a no-cost option and disclosures on any limits on the amount of earned wages a customer may request, any fees that such provider may apply, and the amount of such fees, as well a description of how the consumer may obtain earned wages without paying a fee, among other disclosure requirements.
Importantly, it would also amend the Truth in Lending Act to omit cash advance fintechs, a designation that has spurred 192 labor, civil rights, consumer, legal services and community groups and academics, including the National Consumer Law Center, to pen a letter in
"We had some pushback by some members on concerns related to this legislation, but now that we have unified Republican control in a belief in understanding the importance of development in the fintech space to benefit workers, benefit consumers, I think we have a huge opportunity in front of us this year to move forward," Steil said.
Steil is looking to work with the
"One of the problems with the CFPB … is you're really going to whipsaw as different administrations come in," Steil said. "I think the Trump administration will appoint [someone] who is forward thinking and pro markets, but that doesn't mean we won't end up with a measure of the CFPB down the road who holds a different view."
Consumers speak out in favor of EWA
Consumers seem to be in favor of EWA products, according to comment letters sent to the CFPB and
A heavy concentration of support came from consumers in Chicago, Las Vegas, Phoenix, Arizona, Dallas, Atlanta, Washington D.C. and large metropolitan areas of Florida such as Jacksonville, Orlando and Miami, according to the AFC.
"This is the first time there has been such a massive outcry directly from consumers to a regulator, where we thought it was a good opportunity to highlight that in states across the country," AFC's Goldfeder said.
"It's a snapshot in history," Goldfeder said. "I would take a look at credit cards in the 1950s and Internet shopping in the 1990s, which very quickly became very big buzzes in their time. Because of the advent of new, emerging, innovative products in financial services, it tends to create a lot of unknown and a lot of reactionary regulating and legislating."
Tenisha James, for her part, has become an advocate for EWA in the hopes that her and the industry's efforts will bring the product back to Connecticut. "They just stripped me of a little bit of my financial stability, because, again, now I'm back to scrubbing pennies together trying to figure out how my income is going to work," she said.
"Even if I pay all my bills, now I'm broke. I don't have anything. So how do I get through the next two weeks if I don't have any money? That's where [EWA] came in for me."
