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Blog Post

As Earned Wage Access Space Expands, Who Benefits? Trends and Policy Considerations

Thursday, August 5, 2021

Liquidity – fast and affordable access to cash – is a persistent challenge to many consumers’ financial health. In fact, 1 in 5 consumers has less than two weeks of liquid savings according to a Consumer Financial Protection Bureau Survey. For the nearly two-thirds of Americans living paycheck to paycheck, the time delay between earning and accessing wages can lead to financial distress and drive consumers to seek out high-cost ways to get money quickly. Our 2021 FinHealth Spend report shows that consumers spent $25.3 billion in 2020 on liquidity products, such as payday loans, pawn loans, and overdraft fees.  

New products have emerged in response to these liquidity needs. Often marketed as an alternative to high-cost offerings, earned wage access (EWA) and direct-to-consumer (D2C) advance products help consumers close the gap between earning wages and accessing their paychecks. The EWA and D2C advance industry has exploded in the last few years and continues to evolve as more players enter the market. These products have attracted attention from both policymakers and consumer advocates, some of whom have questioned their merits and potential risks. To help consumers and policymakers alike understand this space, the Financial Health Network and the Financial Solutions Lab have outlined key policy considerations, trends, and findings from the latest research.

EWA & D2C Advance Providers

  • Employer or payroll-partnered EWA providers work with an employer or payroll system to gain insight into earned wage information and offer access to funds before payday, or the day funds are available in a bank account.
  • D2C providers work directly with consumers, connecting to their bank accounts to observe inflows and outflows, and extending consumers a certain amount of liquidity upon request.

In recent years, the EWA and D2C advance space has expanded as more providers have entered the market. Companies have also evolved the products they offer and the way they are offered. Some EWA and D2C advance companies are included in the Financial Health Network’s membership and in the Financial Solutions Lab’s portfolio.

Policy Considerations

These products have also attracted attention from both policymakers and consumer advocates, prompting questions about their potential merits and risks, and, most notably, whether they should be subject to lending laws and regulations. In 2019, the New York State Department of Financial Services announced an investigation of a number of EWA & D2C providers. In 2020, the Consumer Financial Protection Bureau issued an advisory opinion, announcing that companies that partner with employers, and do not charge consumers any fees to take an advance, are not considered lenders. Additionally, in 2021, the California Department of Financial Protection and Innovation issued data sharing memorandums of understanding with a number of EWA and D2C companies, aimed at better understanding this space. 

Research Initiative 

The Financial Health Network is often asked for our perspective on this space from a policy context, and the impact these products have on financial health. In response, we partnered with four companies to better understand how consumers use these products. These companies provided us with at least one year of usage data to analyze. 

From our analysis we found the following:

  • The majority of users took advances in consecutive semi monthly periods. 
  • 97% of advances were successfully recouped. 
  • The cost to take an advance was typically 5% of the advance amount, but the total cost can vary based on the fee model. 

What the Experts Think 

During our webinar on the topic, featuring experts from the Duke University School of Law, Aite Group, and Even, we discussed the financial health implications of these findings, including: 

  • Consistent usage could indicate these products have become a staple in the financial lives of the consumers who use them. 
  • Usage also raises questions about the purpose of these products: Do consumers use advances simply for emergency or misaligned cash flow situations, or because of broader liquidity issues, such as expenses exceeding income?
  • The high rate of recoupment could be a result of the business practices that involve providers recouping from a consumer’s paycheck or bank account inflow, therefore limiting a consumer’s other payment options. That said, EWA and D2C advance companies do note that consumers have the option to revoke or delay repayment.
  • The typical cost to take an advance is low relative to alternative short-term lending products, though costs can vary. This raises the question of who should bear the cost to use these products, as more providers move to models in which employers bear the cost, or companies monetize off the interchange fee with a partner card provider.

Further research into this space can help answer questions about the purposes for which consumers use these products, how recoupment practices affect consumers’ payment choices, how advances compare to wages, and the amount wages are ultimately reduced through use of these products. We at the Financial Health Network will continue to explore this space and encourage providers, advocates, and policymakers to engage with us. Reach out to FinLab@finhealthnetwork.org.

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