For many Connecticut residents getting hit with an unexpected cost such as a medical emergency or car trouble in between paydays can be disastrous.
Tenisha James, a sales assistant for insurance provider Anthem, found herself in such a situation. She turned to the Earned Wage Access (EWA) app EarnIn for help.
“I found it really convenient to use this app because when I get paid bi-weekly it’s very hard to deal with finances with everything being paid out in just one pay period in the times when I’m falling short,” James said.
“What actually prompted me to use it was because I had some car trouble and I had to get my car fixed. Without a car I can’t make it back and forth to work or do other things,” James said, recalling that she had heard about the app through a radio ad and tried it despite initial skepticism when the costs of auto repair forced her hand.
“As long as the company can verify that I work and actually earn wages then I’m able to get a percentage of my wages that I’ve already earned and be able to not go through the hassle of borrowing money from people, looking for a loan or using a credit card. The fee that I paid is no more than the fee that you would get from a regular ATM.”
EarnIn technically has no fee structure at all, users are only required to pay back the money they borrowed, although there is a suggested $13 tip for using the service.
“What made me decide to actually download it was how it was explained that these are your own wages that you have access to. So, it’s not like a loan,” James said.
However, the State of Connecticut’s Banking Commission does not see it the same way, arguing that EWA platforms still qualify as providing loans to customers, particularly since several of the services charge monthly or mandatory fees that can qualify as APRs.
“Connecticut’s Small Loan & Related Activities Act is a broad and remedial statute intended to protect consumers,” said the Commission in a prepared statement. “The Act has been part of Connecticut law since the 1920s. It allows lenders to exceed the state’s 12 percent usury cap if they are licensed by the Department, adhere to statutory requirements, and refrain from receiving finance charges from consumers that result in Annual Percentage Rates (APR) of more than 36 percent.”
According to the statement, companies are required to become licensed as lenders for advances against future earnings if the value of the advance is at or below $50,000 or if the APR is more than 12 percent.
The Small Loan and Related Activities Act was amended in 2016 to consider tips, subscription fees and transfer fees as finance charges that can be taken into account for determining the APR. Enforcement began in earnest at the end of 2023.
“As a result of this legislative change, (which applies to many types of small loans and advances, including earned wage access advances), companies that only accept tips or charge subscription or expedited transfer fees are now covered by the Act if the APR on their loans or advances is greater than 12 percent,” a representative of the State Banking Commission said in a statement. “Some companies that had not been covered by the Act prior to P.A. 23-126 had routinely imposed finance charges on Connecticut consumers resulting in APR’s exceeding 300%.”
This means that the smaller the advance taken through an EWA service, the higher the APR in the state’s view. For instance, a $100 advance through EarnIn would have a 13 percent APR, over the 12 percent limit. Sources with the Banking Commission indicated that the average amount EWA users ask for is between $75 and $100.
Advances are also not solely provided by EWA services.
James noted that prior to Anthem she worked for Amazon and the company has a program that allows employees to receive pay for hours worked ahead of fixed paychecks. Walmart also offers a similar service for employees. However, both of those services are offered to employees for free, with no fees.
“This is available to everybody,” said James of EWA services, which she viewed as partially a matter of fairness. “So, it doesn’t matter whether the employer signed up, this is something where you can take advantage of without anybody being able to say, ‘I’m sorry your company is not a partner with us.’”
According to sources with the State Banking Commission the distinction between an advance without fees and EWA is important, as even low fees paid out repeatedly can add up to high costs.
James said that she became a regular user of EarnIn after she used it to cover her auto repairs. As a result, she said losing access to EWA services at the start of the year has made budgeting difficult even if it means no longer paying fees.
Most EWA providers, including EarnIn, pulled out of the state as a result of these regulations on Jan 1 in response to the amended Small Loan & Related Activities Act.
Representatives of various financial technology companies argued that they should not be considered lenders nor required to go through the process of acquiring a license.
One likened the EWA services as similar to the fee charged at an ATM, arguing that the nature of the business model, which does not accrue additional interest and typically handles failure to pay by disallowing additional advances is fundamentally different, and preferable to the rates charged by pay-day loans.
“It’s a safe, responsible alternative to consumers who are looking for access to finances when they need it on their own terms,” said a representative for a trade association, also noting its immense popularity as one of the fastest growing verticals in many markets.
“It keeps people from having to worry about other options,” James said of her experience with EWA. “The last thing you want to do is incur more debt.”
