Recently, Arizona, Kentucky, and Hawaii have jumped on the bandwagon to regulate earned wage access (EWA) products and services. Arizona’s proposed bill makes clear that EWA services are not considered to be loans or money transmissions, and voluntary tips or gratuities are not finance charges. It further requires EWA providers to be licensed, provide mandatory disclosures to consumers, and to submit an annual report detailing yearly revenue from EWA products. Kentucky’s legislation also makes clear that EWA services are not consumer loans or deferred deposit transactions, and regulates any consideration or gratuity requested as part of the transaction. Hawaii’s bill amends the interest and usury law by defining “debt,” “finance charge,” and “credit” to include EWA products, and requires “annual percentage rate” to be calculated pursuant to the Truth in Lending Act (TILA). Each proposal is discussed below.
Senate Bill (SB) 1273 would apply to both direct-to-consumer EWA services and employer-integrated EWA services. In either case, the amount being provided to the consumer must be earned by the consumer at the time of the advance.
EWA providers must be licensed to offer EWA services in the state.
A licensee must maintain a $25,000 surety bond for the benefit of any person damaged by a violation of the act.
The bill would require a provider to:
- Develop policies to respond to questions and complaints raised by consumers in an expedient manner.
- Offer at least one option to obtain funds at no cost and clearly explain how to elect that option.
- Disclose all fees associated with the EWA product.
- Inform the consumer of any material changes to the terms and conditions of the EWA product before implementing the change.
- Allow the consumer to cancel the EWA service at any time, without incurring a fee or penalty.
- Disclose, both in the contract and immediately before each transaction, that tips and gratuities are voluntary and that the offering of EWA services is not contingent on a tip.
- Provide proceeds to a consumer by any mutually agreed-upon means.
- Comply with applicable provisions of the federal Electronic Fund Transfer Act.
- Reimburse the consumer for any overdraft or nonsufficient funds fees caused by the provider attempting to seek payment on a date before, or in an incorrect amount from, the date or amount disclosed to the consumer.
The bill also prohibits providers from:
- Sharing with a consumer’s employer any fees or tips received from or charged to a consumer.
- Reporting a consumer’s nonpayment to a consumer reporting agency or debt collector.
- Using credit reports or credit scores to determine a consumer’s eligibility for EWA services.
- Imposing late fees, deferral fees, or any other penalty, fee, or interest for failure to pay any outstanding proceeds, fees, or tips.
- Accepting payment from a consumer via credit card.
- Compelling a consumer to repay by filing a suit against the consumer, using a third-party collection agency, or selling outstanding amounts to a third-party collector.
- This prohibition does not apply to providers seeking to collect any outstanding amount incurred through fraud, or to actions against an employer for breach of contract.
- Solicit, charge, or receive tips or gratuities from a consumer, mislead consumers about the voluntary nature of the tips or gratuities, or represent that the tips or gratuities will benefit specific individuals.
- Make any false or misleading statements or omit material information about the EWA products in advertisements.
On or before July 1 of each year, a licensed EWA provider will also be required to submit an annual report that includes:
- Gross revenue from EWA services.
- Total number of transactions.
- Total number of unique consumers.
- Total dollar amount of proceeds provided to consumers.
- Total dollar amount of fees and tips received from consumers.
SB 1273 provides that a violation may result in a fine of between $100 and $1,000 per violation. Additionally, a person found to have knowingly or willfully violated these provisions may be fined between $1,000 and $10,000 for each violation.
House Bill (HB) 322 defines an EWA transaction as an advance of earned wages, salary or commissions, or any other advance or payment in exchange for a sale, assignment, or order for the payment of earned wages, salary or commissions.
The bill further prohibits EWA providers from:
- Soliciting or accepting any gratuity in connection with an EWA transaction.
- Soliciting, offering, or entering into an EWA transaction that requires or permits the payment of any consideration by a consumer that exceeds the following:
- Three dollars for the first transaction within a calendar month;
- Two dollars for the second transaction within a calendar month;
- One dollar for the third transaction within a calendar month; and
- Zero dollars for the fourth or any subsequent transaction within a calendar month.
A violation of the provision will be deemed to be an unfair, false, misleading, or deceptive act or practice in violation of the Kentucky Code.
SB 2664 amends statutory definitions in the Interest and Usury Chapter to expressly include EWA products.
“Debt” will include any amount that a consumer agrees to repay, regardless to the means of collection, whether the lender has legal recourse against the borrower for repayment, and whether the transaction carries required payments.
For purposes of calculating the annual percentage rate, the definition of “finance charge” is amended from merely referencing TILA, to referencing TILA and adding that a “finance charge” includes 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, charged, agreed to, or paid by a borrower in connection with an extension of credit.
Lastly, “credit” will include any sale, assignment, order, or agreement for the payment of unpaid wages, salary, commissions, or compensation, or any portion thereof, whether earned, to be earned, or contingent upon future earnings including tax refunds or other expected sources of funds.