Hartford Business Journal

6 HARTFORDBUSINESS.COM | APRIL 15, 2024 Politics & Policy Phil Goldfeder is the CEO of the American Fintech Council. PHOTO | CONTRIBUTED State lawmakers seek compromise on earned wage access regulations The Banking Committee last month passed the bill on a 10-2 vote. The legislation is now awaiting further action in the House of Representatives. "I think, again, it provides some- what of a compromise, especially with respect to employer-integrated products, which I will submit look less like a loan than some of the other direct-to-consumer products that arguably fall under this framework and are subject to regulation," said state Rep. Jason Doucette (D-Manchester), co-chair of the Banking Committee. Striking a balance The bill received mostly a nega- tive response from consumers, consumer advocates and the EWA industry. EWA companies argued the bill doesn't go far enough in enticing them to reenter the Connecticut market. Consumer advocates say employer-sponsored programs, even with guardrails in the new legislation, could still harm economically vulnerable users. Attorney Raphael L. Podolsky, of Connecticut Legal Services, testified that he appreciates the proposal doesn't totally deregulate the EWA industry and still recog- nizes the service as a loan. Still, he argued the proposed fee caps are "unnecessarily high." He argues a preferential solution to providing access to wages ahead of payday would be to have employers absorb the cost. "It is very important to recognize that the most negative aspects of EWAs are felt by the very workers that are most in need of protection, i.e., those with the lowest income," Podolsky's testimony reads. Phil Goldfeder, CEO of the American Fintech Council, argued in his testimony that earned wage access is not a loan and should not be regulated as such. He voiced support for the state to establish a licensing protocol, but argued against setting distinctions between direct-to-consumer and employer-integrated models. "EWA is a safe, reliable alterna- tive to payday and predatory loans and gives consumers the ability to access the money they have already earned on their own terms," Goldfeder testified. Doucette acknowledged that neither side of the EWA debate is satisfied with the committee's proposed compromise. "I think you can look through the testimony that we received to see that no one who was interested in this bill was really happy with it," Doucette said. "And perhaps that is a good place to be, or perhaps not. Again, we tried to strike a balance here. It is a difficult issue." By Michael Puffer mpuffer@hartfordbusiness.com C onnecticut lawmakers are working on compromise legislation intended to reopen the door to fintech companies that offer "earned wage access" services through employers, while avoiding what some describe as predatory lending practices. Earned wage access (EWA) services, which have been used by more than 150,000 Connecticut workers since 2012, allow users to access already earned wages before payday. The Connecticut Department of Banking in September issued new guidance on the industry — in response to a series of legislative changes adopted by state lawmakers in 2023 — that require earned wage access companies to be licensed and regulated as small loan providers. More importantly, lawmakers also changed the formula used to determine a small loan's annual percentage rate, adding tips and subscription or convenience fees into the calculation. Those are key revenue streams for earned wage access providers, and the formula change pushed many EWA compa- nies well past the 36% small loan APR cap set by state law. The new regulations drove earned wage access companies to stop offering services in Connecticut, which resulted in industry and consumer complaints to the banking department and lawmakers. On one side, the banking depart- ment and consumer advocates argue that money provided by earned wage access companies comes with fees far in excess of the 36% APR allow- able for small loans under state law. That could end up hurting individuals who are already facing financial challenges. EWA companies argue the cash they provide is not a loan — it's money workers have earned on the job. They stress that most services are offered free-of-charge, with elective fees for expedited service and tips. Earned wage access providers generally operate through two models. In one, EWA companies work directly with consumers and determine early payments based on an individual's past pay history. The EWA company gets access to a consumer's bank account, where payments are deposited, and with- draws any fees and the advanced sum on payday. In the second model, EWA compa- nies work with employers to verify wages earned. Payment advances, plus any fees, are handed over by the employer to the EWA company, and then deducted from paychecks. The General Assembly's Banking Committee has proposed and passed a revision to last year's law changes that would ease reactions on EWA providers working directly with employers. They would be excluded from the 36% maximum APR limit, but limited to charging only same-day transfer fees. Those fees would be set at a maximum of $4 per transaction, or $16 monthly, whichever is less. Jason Doucette

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