FlexWage Obtains a Favorable Ruling from the California Department of Financial Institutions
The California Department of Financial Protection and Innovation (CDFI) has released a opinion this says that FlexWage’s Earned Wage Access product is not a loan under California law and therefore does not fall under CDFI’s regulatory jurisdiction.
Earned salary access products are typically apps that allow an employee to access a portion of the scheduled salary several days before their typical payday. The employee then receives a salary which is reduced by the amount of the cash advance plus the fees associated with the use of the product.
The decision suggests that FlexWage is not a loan under California law because the funds are paid directly by the employer, rather than through a third party and because the fees associated with using the product do not exceed the authorized administrative costs. Further, CDFI noted that FlexWage does not attempt to sell other products to consumers who access the product.
The fee is $9 bi-weekly or $16 monthly, depending on the employee’s pay schedule and frequency of product access.
Consumer advocates have warned that some earned wage access products act similarly to predatory payday loans.
The services “are just a softer version of payday loans,” said Lauren Saunders, associate director of the National Consumer Law Center (NCLC).
In fact, Saunders recently testified before a House Financial Services Committee task force about the potential dangers of EWA products.
“Earned Wage Access Products are a form of payday loans — payday advances repaid on payday — and should be regulated as a credit,” Saunders said.
Lynne Marek in Dive into payments reports:
The issue has become more prominent as workers increasingly use Earned Wage Access (EWA) services. U.S. households used these services nearly 56 million times last year for about $9.5 billion in wages under these employer-based programs, according to estimates from research firm Aite-Novarica. . In addition, millions more have downloaded apps that provide cash advances on their salary without employer involvement, the company said in a February trend report.