Estimated reading time: 3 minutes
As we review 2022 and look forward to the new year, our team at FlexWage put together seven 2023 regulation forecasts for the earned wage access industry.
What is Earned Wage Access (EWA)?
Earned Wage Access (EWA), also called on-demand pay, is a voluntary financial wellness benefit. It allows employees to access a portion of their net earned and accrued wages, when needed, between pay cycles.
1. US GAO Review Clarifies EWA and State Responsibilities
The Government Accountability Office (GAO) is an independent, non-partisan agency that works for Congress. In 2023, the GAO Review of Fintech, Equity, and Inclusion will be completed and submitted to Congress and the administration for review.
A divided congress may find it challenging to agree on legislation. However, expect the Consumer Financial Protection Bureau (CFPB) to use this study along with previous actions to define Earned Wage Access (EWA) more clearly, providing a better definition of what it is and is not.
Also, expect the CFPB to allow each state to determine who should be licensed as a lender under the state’s laws. Payroll and prepaid cards were handled the same way. The Federal Government provides the foundation and allows states to determine the specific requirements to protect their citizens.
2. U.S. Treasury 2023 Green Book
The U.S. Department of Treasury Greenbook Proposals proposals are, after all, proposals. It is uncertain whether the provisions for clarifying the definition of on-demand pay and its treatment as a weekly payroll period.
There are other initiatives within the IRS focused on improving the tax gap that represents hundreds of billions of dollars in lost revenue each year to the U.S. government.
The few days difference between when an EWA transfer occurs and when the taxes are paid does not change the total amount of incoming taxes, and the limited amount of net wages accessed early provides significant restrictions as noted in the doctrine.
3. Expect U.S. States to Continue to Issue Opinions On EWA
We expect in 2023 that individual states will continue to issue clarifying opinions on which EWA solutions will or will not require licensing for lending and money transmission. In 2022, both California and Kansas issued opinions.
Most states have specific laws regarding funding sources and fees under their consumer credit regulations. We anticipate that states will look to enforce these existing laws in 2023.
4. Increased State Regulatory Scrutiny Will Require EWA Vendor Licensing And Result In Prepaid Card Non-Compliance
Increased regulatory scrutiny in 2023 will reveal that many EWA providers act as money transmitters and must be licensed as lenders under state laws. The prepaid card accounts/wallets providers are mandating for employees’ EWA, and payroll will be deemed non-compliant in states that do not allow credit products to be attached to a payroll card.
5. EWA Vendors Who Mandate EWA and Payroll Deposits Will Be Found To Be Non-Compliant
In 2023, expect regulators to weigh in on EWA providers mandating the use of their card or wallet accounts for both EWA transfers and payroll deposits. Neither the federal government nor states allow mandating a specific account for payroll deposits. Employers may find themselves non-compliant and named in class action lawsuits for allowing EWA providers to mandate their specified account for their employee’s payroll deposit.
6. Regulatory Scrutiny Over EWA Vendor Control of Employee’s Direct Deposit Accounts
Expect regulatory scrutiny of EWA providers who are given the ability to change and control an employee’s direct deposit account. Employers who contract with these EWA vendors may find themselves in hot water. It is not just an ethical issue but could very easily be a consumer protection and privacy issue.
7. State Regulation of EWA
States may once again look at legislation regarding EWA providers. However, to date, all proposed legislation has failed to make it to the Governor’s desk to sign into law.
Will These Regulation Forecasts Impact Your EWA Solution?
Will these regulation forecasts impact your current (or future) EWA Solution? Staying abreast of regulatory compliance activities impacting the Earned Wage Access industry can be time-consuming (and sometimes tedious). We’re here to help. Let’s start with a conversation about where you are in your journey to provide financial well-being to your employees.
Stay Informed of Regulatory Compliance Impacting the Earned Wage Access Industry
Staying abreast of regulatory compliance activities impacting the Earned Wage Access industry can be time-consuming (and sometimes tedious). We’re here to help. Let’s start with a conversation about where you are in your journey to provide financial well-being to your employees.