EWA At A Crossroads: It Is Time To Demand Better

Earned Wage Access (EWA) is at a crossroads. 

As EWA increases in popularity, regulators and legislators must clearly and precisely define what EWA is and is not.

Estimated reading time: 6 minutes

Image: A businesswoman holding a briefcase with her back to the camera; in the background, a road splits to the right and to the left with green arrows signifying a choice.

EWA: A Simple Idea

More than a decade ago, a dream to deliver the best possible short-term cash flow solution to the millions of workers living paycheck-to-paycheck became a reality.  

The FlexWage idea was simple: Give employees dignified, instant access to an accurate portion of their earned wages in a transparent, responsible, no-risk, and no-loan solution.  

EWA is a voluntary financial wellness benefit that allows employees access to their earned wages between pay periods. When emergencies arise, employees can access what they’ve earned instead of bouncing checks, borrowing money, or accessing high-interest credit (remember, many people don’t have access to credit cards).

EWA Providers must meet these five key criteria to deliver a truly compliant EWA solution that protects both the employee and the employer:

     1. Accurate payroll and time data for each employee

     2. An employer-sponsored and funded model with policy controls 

     3. Payroll deduction to transparently track and reclaim paid wages  

     4. Transparent fees with caps on total fees per pay period and month

     5. Instant funding to the employee’s account of choice

These five criteria are as important today as they were back in 2010 when FlexWage applied to patent the solution.

Is It Good Enough That EWA Is Better Than Payday Loans and Bank Overdrafts?

Many companies have entered the EWA marketplace. But are they really EWA providers?

Some have actually referred to themselves as “like a payday loan but better.”  

No one questions that EWA solutions are better than payday loans and bank overdrafts. But is that the best we can do? 

Will EWA solutions be just as good tomorrow without clear and specific definitions of what EWA is and who an EWA provider is?

When payday loans came into existence, they claimed they were “better than a bank overdraft.“

Payday Loan providers are required to be licensed, and still, they cause financial hardship for millions of Americans.

What is EWA, And Who Is An EWA Provider?

Today, many State regulators want to license EWA providers without clearly and specifically defining what differentiates an EWA provider from a payday lender. Under many proposed laws, an EWA provider can be many things. Below are a few examples.

Does offering an arbitrary 50% of gross wages make it EWA?

Should EWA be defined as a provider with a blanket policy of “50% of last pay cycles gross wages available for the employee to access?” This is what payday lenders do.

Why is the amount 50%? 

Is that fair to the employee? Is that fair to every employee at every payscale in every workplace? What if they work more, or less in the current pay period?

Why not define EWA as access to a true calculation of an employee’s net wages based on actual work in the current pay period?

Is a wage guesstimate good enough to be considered EWA?

Why would EARNED WAGE access ever include guessing, as in:

>>> Using past payroll direct deposit to guess future wages

>>> Using an employee’s best guess at their wages for the week or day

>>> Using an algorithm to guess wages

>>> Using AI to guess wages

You’d be more accurate to call these examples “Guesstimated Wage Access.”

The CFPB Advisory Opinion doesn’t believe guessing should be a part of EWA.

Consumer Financial Protection Bureau (CFPB) Advisory Opinion

(2) The amount of each Covered EWA Transaction does not exceed the accrued cash value of the wages the employee has earned up to the date and time of the transaction, which amount is determined based upon timely information provided by the employer to the Provider. The Provider may not rely upon information provided by the employee, or on estimates or predictions of hours worked or hourly wage rates. The “accrued cash value of the wages” are wages that the employee is entitled to receive under State law in the event of separation from the employer for work performed for the employer, but for which the employee has yet to be paid.

Should wage assignment be part of EWA?

Should EWA be defined as the Provider requiring every employee enrolled in their EWA solution to assign their wages to that Provider? 

Isn’t that what payday lenders require? 

It begs the question: does forcing employees to assign wages have anything to do with giving an employee access to wages they have earned and accrued? 

Should direct deposit and account mandates be a part of EWA? 

Should EWA be defined as the Provider that takes control of the employee’s direct deposit wages and mandates using the Provider’s own wallet/paycard account for EWA and payroll deposits?

Why would any employer or employee want a 3rd party between their payment of wages?

Employers cannot mandate any specific account for an employee’s direct deposit (per Regulation E of the Electronic Fund Transfer Act). So, why is it ok for a provider of a “voluntary financial wellness benefit” to force these mandates on an employee under the guise of EWA?

Is it compliant that an employee’s pay stub doesn’t match the net pay deposited in their account?

Some EWA providers really make things complicated. 

In one vendor-funded EWA model, the EWA Provider fronts the employees’ wages from the vendor’s bank account. How does the Provider get that money back? 

In some instances, the Provider requires the employer to process payroll and send the EWA Provider the payroll file along with ALL the gross wages associated with employees using the EWA service. 

Then, the EWA Provider deducts any EWA transfers and fees.

Finally, the EWA Provider deposits the net pay into the employee’s bank account. 

Are any of these vendors licensed to act as Money Transmitters?  NO.

But wait, there’s more! 

The employee pay statement doesn’t reflect any of this! 

The employee’s pay stub shows a deposit greater than what actually arrives in the employee’s bank account. 

This model violates the Fair Labor Standards Act (FSLA) Regulations and the Truth In Lending (TILA) Regulation Z.

Why would you want a financial wellness benefit solution that creates employee confusion and complaints and is not compliant? 

Why would a convoluted model like this be considered a valid EWA program?

Is free-to-card a true EWA solution?

Over 90% of the EWA users want the transfer of their wages instantly and to the account of their choice. 

When an EWA Provider who says they offer a free EWA solution turns around and charges an employee a “get access now” fee, — is that really free? 

As we pointed out in an article, 7 Criteria To Evaluate The Free-to-Card Earned Wage Access Model, here’s how this model works:

Free-to-card EWA vendors claim they do not charge a fee to transfer EWA funds to the employee. Instead, they generate revenue by mandating the employee use the vendor’s payroll card or digital wallet to receive the EWA funds. In some cases, free-to-card EWA vendors also require that the employer transfer all payroll deposits to the EWA vendor’s bank account (for those employees who have made EWA transfers). The EWA vendor then debits the EWA transfers and fees and deposits the remaining payroll into the employee’s named account. The free-to-card EWA vendor makes money from the interchange fees incurred from card usage and other fees assessed, including transferring the funds to another card account.

Haven’t we all learned that these find-it-in-the-fine-print misdirects are bad for consumers? 

Are the only criteria to ensure EWA isn’t a loan through the “nonrecourse clause?”

Many EWA Providers claim that nonrecourse is the reason they are not a loan.

Is this the best we can do?  

By definition, nonrecourse applies to debt and loans.  

Nonrecourse clauses do not stop an EWA provider from making several attempts to collect funds. If a Provider’s inaccurate EWA system causes an overpayment, they can still initiate a claw-back of funds from an employee’s bank account either via payroll deduction or direct debit of the employee’s account.  

Those claw-backs can create overdrafts on an employee’s account.

And to top that off, the employee is also prevented from future access to their earned wages until the “debt” is repaid. The employee must return to the black hole of payday lenders and overdraft fees. And it’s all because the EWA Provider’s inaccurate model created a mistake in estimating wages and gave the employee too much money.

How is this helpful to the employee? How is this financial wellness?

EWA At A Crossroads: It’s Time To Demand Better

We can, and we must do better.

Today, as regulators shine a spotlight on EWA solutions and seek to protect consumer rights, we have a chance to get this right. 

Let’s make EWA the best it can be and ensure that it provides real financial help to employees — as the pioneers of EWA initially intended. 

Now is the time to clearly define what EWA is: 

A voluntary financial wellness benefit that gives employees instant access to an accurate portion of their earned wages in a transparent, responsible, no-risk, and no-loan solution.  

EWA solutions must include these criteria: 

     1. Accurate payroll and time data for each employee

     2. An employer-sponsored and funded model with policy controls 

     3. Payroll deduction to transparently track and reclaim paid wages  

     4. Transparent fees with caps on total fees per pay period and month

     5. Instant funding to the employee’s account of choice

Let’s ensure tomorrow’s EWA providers aren’t viewed like today’s payday lenders.

EWA Done Right

FlexWage delivers “EWA Done Right” because it offers the most compliant, responsible, and transparent Earned Wage Access (EWA) solution.

Schedule an introduction call today!

Keep exploring and learning >>>>> Five Crucial Recommendations for EWA Regulators