Indiana lawmaker seeks regulations for early-wage-access industry

With Hoosier employees increasingly using payment tools that let them tap earned wages before a regularly scheduled payday, an Indiana lawmaker is proposing a new framework to regulate the “earned wage access” industry.

Critics, however, summed the proposal up as “re-warmed payday lending.”

House Bill 1125, authored by Republican Rep. Jake Teshka, would create the “Indiana Earned Wage Access Act,” putting certain rules in place around earned wage access, or EWA, services. Under the bill, Indiana’s Department of Financial Institutions would be tasked with overseeing a new licensing system.

The legislation was heard in the House Financial Institutions Committee on Tuesday and is expected to be amended—and potentially advanced to the full chamber—next week.

Teshka said his bill “is simply seeking to place a regulatory structure” around an existing service “that hundreds of thousands of Hoosiers already use.”

“During the pre-industrial era, and even during the early parts of the Industrial Revolution, American workers would typically be paid daily for the work that they performed that day. In fact, this idea is actually an ancient one. Look at some of the biblical texts and Jesus’ parable on the workers in the vineyard and paying on a daily basis,” Teshka said.

“It was only once our Industrial Revolution really advanced further that we got into the modern payroll system where workers now could be paid on a weekly basis—or could be a biweekly, even a monthly basis,” he continued. “Those workers sometimes can go weeks, even a month, without receiving payment for the work that they’ve already put in. And so during that intervening period, of course, unexpected expenses may pop up, things may happen that leave workers struggling to pay their bills.”

Teshka pointed to “innovative companies” that have since made it possible for workers “to access the money that they’ve already earned—we call that earned wage access.”

EWA is intended to differ from payday loans that are short-term, high-cost personal loans with steep fees and high interest rates. Payday loans are typically due on an employee’s next payday, while EWA is designed for employees to receive money for hours they’ve already worked. These service providers often integrate directly with a companies’ payroll system.

Multiple EWA service providers operating in Indiana spoke in favor of the bill, but Erin Macey, director of the Indiana Community Action Poverty Institute, worried the bill does not do enough to ensure that services don’t become predatory.

“We do want earned wage access providers to be licensed and regulated, but we have concerns that while HB 1125 provides some guardrails, there are significant omissions,” she said, noting that the bill does not set limits on overall fees or charges for using EWA services.

“Because we’re classifying earned wage access products as outside of the scope of Indiana’s lending laws, they are not subject to rate caps, fee limits, or our criminal loan sharking statute,” Macey added. “While you may hear today about options that are more affordable than a payday loan, the fact that there is no limit whatsoever on the charges for these products is an extremely concerning omission.”

New regulations

Nationwide, dozens of EWA providers make such early pay available to millions of U.S. workers, mainly those who are hourly.

EWA has mostly remained unregulated, although a handful of states began passing laws that are friendly to the industry over the last year.

Providers have largely backed policies that call for oversight in the form of EWA registration at the state level, as well as rules to require certain annual reporting requirements.

State laws have typically refrained from treating EWA providers like lenders. Even so, the Consumer Financial Protection Bureau countered that legislative trend when it issued an interpretive rule last year, which said that existing laws require EWA providers to abide by federal lending laws, like the Truth in Lending Act.

To date, more than 300,000 Hoosiers have used EWA services and more than 3,000 employers offer EWA benefits to their workers, said Ashley Urisman, director of state government affairs at the American Fintech Council.

Included in Teshka’s proposal are licensing and reporting requirements for EWA providers.

The representative additionally outlined several “consumer protections” in the bill that prohibit late fees or interest on EWA products, as well as credit checks or credit reporting for those using the service.

The bill also requires at least one cost-free option for accessing early wages. Teshka said that’s often already the case for Automated Clearing House, or ACH, by which funds are transferred directly into a person’s bank account. That option sometimes takes several days, while other options—often requiring a fee—could see dollars transferred faster.

EWA providers open to regulations

Andrew Welch, government relations manager for DailyPay—the country’s largest EWA company—said that company has operated in Indiana since 2015 and is partnered with more than 625 in-state businesses. Welch said roughly 155,000 Hoosier employees already use DailyPay.

Welch said DailyPay integrates directly with companies’ existing payroll providers and maintained that users “are not accessing credit or being advanced funds beyond what they have earned, based on projected wages.”

That’s different from payday loan providers, which typically do not require such integration for loans.

“EWA is popular with businesses because it reduces employee turnover, absenteeism, and helps attract employees to fill open positions,” Welch said. “It’s popular with employees because Indiana workers today expect life on demand, including from HR departments and payroll systems.”

DailyPay offers instant delivery of earned wages to a bank account for a one-time fee of around $3.49, or at no cost for a bank transfer taking one to three business days.

“This bill, if passed, would provide for a responsible, consumer protection-oriented approach to regulating earned wage access services, ensuring innovative services continue to be available to help Indiana workers access their money that they have already earned when they need it at low or no cost,” Welch said.

Ben LaRocco, senior director of government relations for EarnIn, one of the largest providers of earned wage access services, said more than 100,000 Indiana residents have used that company’s product, including more than 42,000 in the last year.

Top Hoosier employers include Amazon, Lowe’s, Community Health Network, IU Health and the U.S. Postal Service.

EarnIn charges a fee—between $2.99 and $4.99—for some of its services, but LaRocco said about a third of users choose an option to pay “nothing at all.”

“In financial services, a lot of things are regulated, almost everything. So, as we have matured as an industry, we need to talk to lenders that help us facilitate funds for the transaction. We are talking to businesses who want to partner with us. We’re talking to investors who want to invest in us so that we can continue to grow. And because we’re not in this category, we’re kind of on our own, because there’s not a unique regulatory space,” LaRocco said. “Some of those larger, more established entities have concerns with uncertainty. So we want to provide that certainty for our partners, and we want to provide certainty for our customers, to ensure that they can rely on us to be around.”

Concerns and possible dangers

Macey, with the Community Action Poverty Institute, was neutral on the bill but expressed concerns on behalf of her organization and multiple others from across the state.

She maintained that, at a minimum, lawmakers should ensure EWAs are “no more expensive than a payday loan.”

“We know that, as a general rule, living paycheck to paycheck when folks need to borrow cash—they’re unlikely to be able to pay it back successfully from their next paycheck,” Macey said. “And this sets up a cycle of borrowing and reborrowing, that many refer to as a debt trap. Already in the data available on EWAs, we see clear signs of this.”

A California analysis, for example, found the average APR for EWAs in that state was over 300%.

Macey also pointed to other data showing that reborrowing makes up “a significant share of the market,” with 75% of consumers taking out EWA loans within 24 hours of repayment. In a recent nationwide analysis by the Consumer Financial Protection Bureau, the average user had 27 earned wage transactions per year.

The current minimum term for a payday loan is 14 days, but Teshka’s bill sets no minimum terms for EWAs.

“I would encourage you here, and in the context of other loans, to set a minimum term that offers a reasonable amount of time to repay,” Macey said. She urged, too, that EWA providers be required to report an APR to borrowers “to facilitate comparisons across different types of credit.”