What Proposed Regulations on Paycheck Advances Mean for Earned Wage Access Benefits

The Consumer Financial Protection Bureau (CFPB) is cracking down on earned wage access and trying to classify such offerings as consumer loans, a move that could deal a blow to the popular instant pay benefits offered by companies including Walmart, Bath & Body Works, and McDonald’s.

The agency proposed an interpretive rule July 18, saying that apps that allow workers to access their paychecks in advance are providing loans and should therefore be subject to the Truth in Lending Act, a 1968 law that requires lenders to disclose all loan costs and fees.

If the rule is finalized, it would require companies offering early access to wages to make additional disclosures to users, helping borrowers make more informed decisions, the CFPB said. Additionally, it would require that costs or fees incurred by consumers to access their paychecks early be expressed as an annual percentage rate (APR).

“Paycheck advance products are often marketed to and designed for employers, rather than employees,” CFPB director Rohit Chopra said in a press release on July 18. “The CFPB’s actions will help workers know what they are getting with these products and prevent race-to-the-bottom business practices.”

The new guidelines could be wide-reaching because more than 7 million workers accessed about $22 billion in wages before their scheduled paydays in 2022, according to a CFPB analysis of employer-sponsored programs also published July 18.

The CFPB said the typical earned-wage-access user pays fees that amount to a 109.5% APR.

A Rising Benefit

Earned wage access apps have been around for several years but have risen in popularity in recent years, especially among retailers. Walmart, Dollar Tree, and McDonald's are among the companies that offer their workers access to the convenience, and many employers tout the offering as a competitive edge. Bath & Body Works just announced the addition of an instant pay benefit, having partnered with DailyPay, a tool that allows workers access to their earnings before payday.

The 2024 SHRM Employee Benefits Survey found that 16% of employers offer payroll advances to workers.

High inflation, rising employee financial stress, and the pandemic are all reasons behind the rise in instant pay benefits. Roughly one-third of U.S. workers said they’re living paycheck to paycheck and have nearly no money for savings after paying their monthly bills, according to a May survey from Bankrate. Another study by the American Staffing Association and the Harris Poll earlier this year found that 53% of workers feel their paychecks are not keeping up with the pace of inflation.

“Earned wage access is designed to be an employer-sponsored benefit,” said Borja Perez, vice president of payroll firm CloudPay, adding that earned wage access aligns with today’s on-demand culture. “It’s a financial wellness tool and should be a no-brainer to provide relief for the majority of Americans who are living paycheck to paycheck. It's money that workers have already earned, and they should be able to access it. It’s as easy as that.”

A 2022 survey of nearly 3,500 workers by global staffing firm Aquent found that nearly 57% of respondents said instant pay benefits were slightly or very important to them. Younger workers are even more interested in the offering: Among workers ages 18 to 24, that number was 83%, the survey found.

Although some employers cover the fees associated with accessing earned wages before payday, workers usually have to pay a small fee to access the funds early.

More than 90% of workers paid at least one fee in 2022 when employers did not cover the costs, according to the CFPB analysis.

Perez said a true earned wage access option “allows workers to access the wages they've already earned with no fees. The CFPB’s new proposed rule will help bring clarity to this issue by differentiating it from a payday advance, the latter of which often charges employees fees or encourages ‘tips’ in exchange for offering the service.”