Nearly a quarter of all U.S. states have regulations governing the earned wage access, with a variety of rules forcing providers to take a hard look at compliance ahead of even more rules that are expected to come in the next year.
Six states, including Arkansas, Connecticut, Indiana, Louisiana, Maryland and Utah, have passed their own regulations this year, doubling the total number of
A majority of those states share common requirements around fees, disclosures and reporting requirements, which has helped soften the blow that an onslaught of regulation usually brings companies.
"There are certain states that will have deference to other states on policy," Darcy Tuer, co-founder and CEO of EWA provider Zayzoon, told American Banker. Zayzoon integrates with payroll providers to allow small- and medium-sized businesses to offer EWA services to their employees.
"I think you will end up getting a bit more of a peanut-buttering effect among states. You're going to start to see patterns emerge," he said. "That helps us develop a model where we're not trying to operate under 50 different frameworks. Obviously that would add an extreme amount of overhead."
Fragmented requirements
A handful of states, such as
For some EWA providers, a proactive approach to state-level compliance has helped stay ahead of new regulations.
Employer-integrated
Companies in other budding industries, such as
Regulation "prevents a race to the bottom," DeMatteis said.
Staying on top of state regulations has required DailyPay deploy about 20 lawyers and compliance experts to monitor everything from licensure requirements to bills on the docket.. Most states have some sort of licensing requirements for EWA providers, many with different fee structures and renewal schedules.
Alpharetta, Ga.-based Instant Financial, an employer-integrated provider focused on the restaurant and hospitality industry, went so far as to proactively apply for numerous state lending licenses, Heather Heebner, senior vice president of regulatory and treasury compliance, told American Banker.
In 2019, Instant Financial performed a 50-state survey looking for where its product could run afoul of lending licenses. "We had about seven lending licenses across the country where we just didn't have the benefit of not being considered a lender, Heebner said of the stricter rules in those states.
Instant ended up with seven state lending licenses, including Missouri, which it later converted to an EWA license, Heebner said.
Buying tech
Investments in technology and automation have also helped Zayzoon stay up with shifting licensing and reporting requirements.
"With technology, it's relatively easy to operate and even automate a lumpy regulatory model," Tuer said. "It's work upfront, but once you put that work in you can leverage that capital investment to support the reporting and the variations and models."
Not every contingency can be planned for. For example, Connecticut limits the amount of fees an EWA provider can charge per month, which has proven to be a challenge for Instant as the company works out how to communicate to its customers why there are limitations to its services.
"These are some of the things that we're still working on internally," Heebner said. "What would we pop up in the app to this consumer? What would we say? 'You're now approaching X amount, you will have to exercise a free option from this point forward?'"
When next year's legislative session begins, EWA providers are preparing for new state regulations. Some are optimistic that new laws will follow the lead of existing legislation.
"My long view is that there will be a normalization of how [EWA] gets regulated," Zayzoon's Tuer said. "There may be a state or two where we say, It's just untenable. We can't operate.
"Philosophically, that would be really hard for me. But we are a business, so we're going to have to make a decision based on the realities that may exist," he said.
