The car breaks down. The dog gets sick. Such are the unexpected life events that crash budgets and send checking account balances plunging into the red.
Earned wage access platforms, a phenomenon of the gig economy, give people who live paycheck to paycheck access to the money they’ve earned without hitting up the boss for an advance on the paycheck.
“So many people are still struggling right now as a result of the pandemic,” Nevada Sen. Majority Leader Nicole Cannizzaro testified Wednesday before the Senate Committee on Labor and Commerce. But even before COVID-19, three-quarters of Americans lived paycheck to paycheck, Cannizzaro noted, including her own family.
“Asking for just a little bit of money” can mean avoiding a bank overdraft fee. “I’ve definitely been in that situation and I’ve watched my parents in that situation,” she said.
Services that give employees access to the money they’ve already earned can reduce bank fees or eliminate the need to resort to high-interest payday loans, thereby increasing financial stability.
The programs come in a variety of iterations. Some are offered by employers through their existing payroll service. Others are provided by third-party vendors selected by the employee or the employer.
Walmart, which pays its employees $11 an hour, $4 less than comparable retailers such as Target, offered access to earned pay to its workers and more than 200,000 used it in the first year, according to Cannizzaro.
Providing paycheck information to a third-party is fraught with privacy landmines. Senate Bill 198 aims to reduce the risk by requiring providers to be licensed by the state’s Financial Institutions Division.
Cannizzaro says employer-involvement in the process helps ensure fairness for employees, and is critical to supplying wage info.
“Without the employer involved there is a strong possibility this becomes internet payday lending, by another name,” she said.
EarnIn, a third-party provider with no affiliation to employers, provides money based on their customers’ wage projections. The service doesn’t charge a fee but suggests a ten percent ‘tip.’ It also originally required clients submit to GPS tracking to ensure they were actually going to work. That changed with the pandemic.
Cannizzaro called tips and GPS tracking “predatory lending practices.”
In 2019, a Missouri state senator said she was revising her payday-lending regulation measure to include models such as EarnIn’s.
“This is absolutely a new and different way to skirt the laws around payday lending,” Jill Schupp, a Democratic state senator from Missouri, told NBC News in 2019. “To use the word ‘tip’ instead of a usury charge, an interest rate or a fee, it’s just semantics. It’s the same thing at the end of the day.”
Earnin operates in all states, even where payday lending is illegal.
“The bill makes the distinction between employer-affiliated providers” and those with no connection, says Peter Aldous, attorney with the Legal Aid Center of Southern Nevada.
“EarnIn’s model is ‘you provide us all this information from your pay stubs. It creates issues — not just privacy, but what if they get it wrong? What if they lend more than the worker can pay back?”
Employer-sponsored models are not problematic, Aldous says. “They can see how much you’re going to make. They also know if you’ve got a child support garnishment or other withholdings.”
Daily Pay, a leading platform, charges $1.99 to transmit funds to the worker within eight to 24 hours. Instant delivery — within 20 minutes — is available for $2.99, according to Matthew Kopka, the company’s government affairs director, who testified before lawmakers.
Typical use patterns show employees use it about once a week, he said, adding some employers opt to subsidize one free transfer a pay period.
Is at-will access to pay possibly perilous to financially-struggling workers? For workers battling addictions such as problem gambling, do the platforms offer a similar means of funding the addiction as obtaining a payday loan?
“Not necessarily,” says Aldous. “Unfortunately the problem with problem gambling is whatever kind of limits life puts in front of a gambler, there’s always a way around the limit.”
Aldous says people seeking to feed an addiction would instead turn to payday loans, which charge exorbitant interest.
“That brings continuing collection activity,” Aldous says. ”It seems to me most payday loans are given with the intention that this loan is not going to be paid back. One loan for $100 ends up costing a borrower $1,000.”
Walmart, according to a story in Bloomberg, coupled their earned wage pay feature with tools for financial stability on their employee app. The company found that employees who used the early pay feature frequently left their jobs sooner than those who used the budgeting and savings features, too. The payday advance has become the company’s second-most popular benefit, behind retirement savings accounts.
“This is designed for, and I hope will be used by people who run into an unexpected expense. A lot of people don’t have credit. It will be a huge benefit for those people,” Aldous said. “For the most part i believe this bill will help low-income Nevadans.“