“Multiple Overdraft Fees”

Earned-wage access companies have been operating for nearly a decade but grew in popularity during the COVID-19 pandemic. A report from the Federal Reserve Bank of Kansas City found that the amount of earned-wage access transactions tripled in value from $3.2 billion in 2018 to $9.5 billion in 2020. DailyPay reported that its users accessed more than $7 billion in paycheck advances in 2023 alone.

The Kansas City Federal Reserve noted that it had concerns about the growing popularity of earned-wage access products, specifically about the complexity of their fees and the potential for consumers to become reliant on the service.

“Transaction fees are typically not assessed for three-business-day delivery, but when an employee/consumer opts to receive their wages sooner, the fees range from $0.49 to $13.99 depending on the provider and how quickly the employee/consumer receives their wages,” the bank stated. “Some users . . . have indicated that they repeatedly selected fee-based payment options because they were not aware that a free option was available.”

According to one recent study, nearly 80 percent of users pay the expedited fees, which are a core part of the earned-wage access business model, said Adam Rust, director of financial services at the Consumer Federation of America.

“You see these loans are characterized frequently as being free, but so many of them are kind of full of other fees,” Rust told us. “This is the whole revenue model, it’s based on lots of bits of money again, and again, and again.”

In 2023, the California Department of Financial Protection and Innovation conducted an exhaustive study looking into seven earned-wage access companies and more than 5.8 million transactions that took place on the apps during 2021.

The study found that more than $765 million was advanced to California-based users who ended up paying an average annual percentage rate between 331 percent and 334 percent. The average annual percentage rate for traditional payday loans in California is 372 percent, according to the state’s attorney general.

The California study also found that 80 percent of the paycheck advances employees received ranged between $40 and $100.

A 2024 study from the Center for Responsible Lending found a 56 percent increase in overdrafts from users’ checking accounts after an initial advance, as companies tried to collect their money.

“If you have insufficient funds in your bank account, [these companies] will attempt to collect repayment on multiple occasions, so you could end up receiving multiple overdraft fees as they attempt to claw back their payment,” Lucia Constantine, coauthor of the study, told us.

The study also found that companies seeking tips from their users often set the default tip amount above $0 and claim the tips are “used to support other vulnerable customers or for charitable purposes.”

The California-based study of earned-wage access companies found that users left tips 73 percent of the time, which generated more than $17 million for the companies.

Some users told the Center for Responsible Lending researchers that they’ve become stuck in a cycle of debt due to the earned-wage access services.

“Many of them spoke to the fact that they were simply unable to exit the cycle, because the first time it provided them money to cover expenses, but after that they’re basically taking away their paycheck,” Constantine said. “Having to repay these advances with a reduced paycheck makes it really difficult to catch up.”

A 2023 report conducted by the Government Accountability Office found that users for one earned-wage access company averaged ten to twenty-four paycheck advances a year. Another company’s users averaged twenty-six to thirty-three paycheck advances a year.

“If consumers rely on earned-wage access to cover their daily expenses, they may need to use it again to make up for the funds used to repay a prior advance,” federal researchers wrote.

“It’s A Pay-to-Play Group”

For more than fifty years, ALEC has used its largesse to draft legislation that slashes taxes, privatizes schools, repeals minimum-wage laws, and fights pro-Palestinian protests and Israeli divestment measures.

ALEC has received more than $145 million in contributions between 2001 and 2022, according to public disclosures.

“It really depends on the year, or what kind of bills get pushed, but [they’ve worked on] everything from climate denialism or bills to prop up the fossil fuel industry, and bills to stop Medicaid expansion,” Armiak said.

Last year, Armiak and the Center for Media and Democracy were able to uncover the origins of nearly 40 percent — $16.4 million — of ALEC’s funding from 2017 to 2021. The largest donor was the Lynde and Harry Bradley Foundation, a right-wing nonprofit that promotes school privatization and climate change denialism, which has given more than $3 million.

Billionaire Charles Koch, ALEC’s second-largest donor, gave the group more than $2 million between 2017 and 2021 via his personal foundation and other avenues, Armiak found. Koch, along with his now-deceased brother David, founded Koch Industries, a petrochemical conglomerate, and has been a major donor to right-wing causes for decades.

A 2019 investigation by USA Today and the Arizona Republic found that bills modeled on ALEC-drafted legislation were “introduced nearly 2,900 times, in all 50 states and the U.S. Congress, from 2010 through 2018, with more than 600 becoming law.”

“The main thing with ALEC, to drive this home, is it’s a pay-to-play group,” Armiak said, adding that a money trail to various industries often arises in regulatory filings years after legislative templates are drafted.

In 2022 and 2023, ALEC received membership payments from Oracle, a massive Austin, Texas–based technology corporation whose first client was the Central Intelligence Agency in 1977 and whose founder and chief technology officer is Larry Ellison, a billionaire with close ties to Elon Musk.

Oracle, a multibillion-dollar company, offers payroll services to businesses and an “anytime pay” service that “allows earned-wages when [employees] need, instead of waiting for payday,” the corporation wrote on its website.

DailyPay, “a leader in earned-wage access,” is a member of the Oracle PartnerNetwork and teamed up with Oracle to offer its product to Oracle clients.

“With DailyPay, Oracle . . . customers will have the ability to provide the powerful employee benefit of on-demand pay to their employees, allowing them to access their income as they earn it,” a September 2023 news release announcing the partnership states. “With choice and control over their earned pay, DailyPay users can pay bills, spend, save, or invest on their own schedule — not an arbitrarily scheduled payday.”

The earned-wage access company Payactiv is also a member of the Oracle PartnerNetwork and offers its services to Oracle clients, according to a November 2023 news release.

In late 2023 and early 2024, EarnIn paid a lobbying firm — Pillsbury Winthrop Shaw Pittman LLP — to lobby House members on earned-wage access legislation. The lobbying was undertaken by former representatives William Lacy Clay Jr of Missouri and Greg Laughlin of Texas. Clay served for twenty years in the House and was the chair of the subcommittee on consumer protection and financial institutions, among other roles. Laughlin served in the House for eight years and represented both the Democratic and Republican parties before he left office in 1997.

The lobbying firm also used former Hill staffers to lobby for earn-waged access legislation.

Similarly, DailyPay also used a lobbying firm made up of former Hill staffers.

“Predatory Practices”

Prior to 2020, earned-wage access companies, like many financial technology companies, operated in a regulatory gray area. The industry scored a major win in 2020 when the Consumer Financial Protection Bureau under Trump issued an advisory opinion stating that earned-wage access companies were not involved in “the offering or extension of ‘credit.’”

In early 2022, Biden’s Consumer Financial Protection Bureau issued a statement clarifying that the prior advisory opinion caused “significant confusion in the marketplace” and promised to issue greater clarity in the near future. The bureau has yet to issue a rule on the matter, but states across the country have begun enacting legislation and regulations to govern the nascent industry.

The regulatory fight between consumer advocates and pro-industry groups boils down to whether states adopt regulations that treat earned-wage access services as something new or treat the services as a loan or credit and subject them to established laws governing interest rates and lending policies.

The ALEC-drafted model bill states that the money sent to users “shall not be considered credit” and that earned-wage access companies “shall not be considered a creditor.” Core parts and whole definitions from the ALEC-drafted legislation appear in state bills as well as the federal bill being pushed by Republican lawmakers in the House. The similarities between the ALEC model and the federal and state bills includes similar definitions for nonmandatory payments, earned but unpaid income, outstanding proceeds, and others.

Additionally, the financial technology industry is demanding that its services be treated as a new form of innovation that should not be subject to existing legislation, said Rust, with the Consumer Federation of America.

“Increasingly you see a [financial technology company] claim that traditional regulations don’t apply, because this is a new innovative way of providing an advance that is not a loan, and the fees associated with it aren’t finance charges,” Rust said. “It should be regulated as a form of credit, and the fees should be regulated as finance charges.”

The American Fintech Council has pushed back against regulation in California, Connecticut, and Washington.

California regulators have proposed a rule that would consider earned-wage access services as loans.

In a letter to regulators, the American Fintech Council, Chamber of Progress, Payactiv, EarnIn, DailyPay, and other groups and companies involved in the earned-wage access industry wrote that the rule would “continue to misclassify [earned-wage access services] as a loan and providers as ‘finance lenders.’”

Conversely, the Consumer Financial Protection Bureau issued a letter of support for the California rule, saying that “by treating these products as loans and including a variety of charges that accompany the advance, [California’s] proposal takes a similar approach as the Truth in Lending Act,” and other federal regulations governing consumer credit.

The bureau also said that it plans to “issue further guidance” on the matter.

The proposed California rule has yet to take effect and is currently in limbo due to a legal analysis that found it lacked “clarity.”

Consumer advocates want these new financial technology apps to be regulated as payday loans, in order to prevent earned-wage access providers taking advantage of consumers in dire straits.

“There shouldn’t be a workaround just because it’s a new app,” said Chen Zinner, with Americans for Financial Reform. “In many ways, it’s even more dangerous than going into a payday lender [store], now it’s accessible on your phone, which means all those predatory practices are easier to access and [consumers are] more quickly to be preyed upon.”