New laws implement regulatory standards and licensing requirements for fintechs seeking to improve employee access to wages.
On June 13, 2023, Nevada enacted a law that regulates earned wage access (EWA) services provided to state residents. Missouri followed by enacting an EWA law on July 7, 2023 that shares many similarities with Nevada’s. The new EWA laws make Nevada and Missouri the first two states in the US to establish statutory frameworks designed to regulate EWA services.
EWA services enable a consumer to receive earned employment income prior to a scheduled payday. They ideally provide an alternative to high-cost forms of credit, such as payday loans, although some consumer advocacy groups have warned of fees and other problematic aspects with certain EWA services.
To date, the principal providers of EWA services are fintechs, some of which are new entrants and some of which have been in the EWA business for several years.
Importantly, the EWA laws in both states exempt EWA services from their respective state laws that regulate loans and money transmission. EWA service providers in Nevada or Missouri would therefore not be regulated as a lender or money transmitter in connection with the EWA services they provide to residents of those states.
The Nevada EWA Law
Subject to certain exceptions, the Nevada law requires a provider of “direct-to-consumer earned wage access services” or provider of “employer-integrated earned wage access services” to obtain a license to offer such services to Nevada residents. The former type of provider pays the consumer earned employment income based on data that is not employment, income, or attendance data received from an employer or an employer’s payroll provider; the latter type pays the consumer based on such data. The Nevada law includes an exemption for federally insured depository institutions.
Once licensed, a provider must renew its license annually, with a fee of up to $1,000, and submit an annual report to the commissioner. Among other information, the annual report must include audited financials for the most recent fiscal year and total amount of charges paid by consumers in Nevada for EWA services over the preceding year. A provider must also maintain a $35,000 surety bond.
In addition to these license requirements, the Nevada law imposes other requirements and prohibitions on EWA services providers. An EWA services provider must:
- Implement policies and procedures to respond to questions from consumers and quickly address complaints from consumers
- Before entering into an agreement with a consumer, disclose the consumer’s rights under the agreement and the associated fees
- Permit the consumer to cancel the agreement at any time without a fee
- Comply with any applicable local, state, and federal privacy and information security laws
- Clearly disclose that any tip or similar optional fee that a consumer pays does not inure to the direct benefit of any employee of the provider or any other person
- Provide at least one option for a consumer to obtain EWA services at no cost to the consumer
- Provide an option for the consumer to give zero dollars for any tip or similar optional fee
- Comply with the applicable provisions of the federal Electronic Fund Transfer Act when seeking payment from a consumer’s bank account
- Reimburse the consumer for any overdraft or non-sufficient funds fee imposed on the consumer by the consumer’s bank when initiating payment from the consumer’s bank account on a date before the date disclosed to the consumer or for an amount different from the amount disclosed to the consumer.
An EWA services provider must not:
- Share tips or other optional fees received from a consumer with the consumer’s employer
- Use a consumer’s credit report or credit score to determine the consumer’s eligibility for the EWA services
- Charge any late fee or other penalty for a consumer’s failure to pay
- Report a consumer’s failure to pay to a credit reporting agency or debt collector
- Compel the consumer’s payment through civil action, a debt collector, or selling or assigning outstanding amounts to a debt collector or debt buyer.
The effective date for the Nevada law (except the licensing requirements as described above) is the earlier of the adoption of regulations implementing the Nevada law or July 1, 2024.
The Missouri EWA Law
As with the Nevada law, the Missouri law applies to both direct-to-consumer and employer-integrated EWA providers. Providers offering EWA services to Missouri residents must register and provide certain information about their business and their officers, directors, principals, or partners. A registration fee of $1,000 from each registered provider will be due annually. The specific registration forms and process do not appear to have been determined yet, but the Missouri regulator will presumably provide further information on implementation of the new law and EWA provider registration in the near future.
The Missouri law provides similar requirements to the Nevada law that EWA providers must follow. The Missouri law specifies requirements and prohibitions that are substantially similar to those under Nevada’s law. One notable addition to the Missouri law, which is not present in the Nevada law, is the prohibition on accepting payment from consumers via credit card or charge card. Another notable difference is that the Missouri law does not require an EWA provider to offer a no-cost option to consumers, whereas the Nevada law mandates at least one no-cost option. However, implementing regulations from the Missouri and/or Nevada regulators could narrow or eliminate these differences.
The Missouri law goes into effect on August 28, 2023. EWA providers should pay close attention to announcements from the Missouri regulator regarding forthcoming regulations or registration information.
Future EWA Legislation
Other states have tried to clarify the treatment of EWA services under their laws. Earlier this year, California proposed regulations that would generally subject EWA services to the same regulatory treatment as loans under the California Financing Law. Meanwhile, the Arizona Attorney General issued an opinion finding that EWA services are generally not subject to regulation as a loan under Arizona’s Consumer Lenders Act.
A number of other states are considering new legislation or action on EWA services, including Georgia, New Jersey, New York, North Carolina, South Carolina, and Utah. With Nevada’s and Missouri’s recent legislative action, more states may decide to legislate or otherwise clarify how EWA services are to be provided to their residents.
EWA Under Federal Law
At the federal level, there is still uncertainty regarding how EWA services will be regulated. In late 2020, the Consumer Financial Protection Bureau (CFPB) issued an advisory opinion clarifying that EWA services, as narrowly defined in the advisory opinion, are not considered credit under Regulation Z, which implements the federal Truth in Lending Act. However, CFPB General Counsel Seth Frotman subsequently sent a letter regarding New Jersey’s proposed EWA legislation that emphasizes the limited scope of the CFPB’s EWA advisory opinion. Furthermore, in connection with rescinding a prior special regulatory treatment it had granted to an EWA provider, the CFPB announced on June 30, 2022 that it plans to issue further guidance on EWA, although further guidance has not been issued to date. It remains to be seen whether the CFPB (or other federal regulators) will approach EWA similar to the Nevada and Missouri laws or if it will treat EWA like consumer loans, as some consumer groups have advocated. Latham & Watkins will continue to monitor developments in this area.