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Early Wage/Income Access Programs

The need for early access to your wages is not a new concept. Early wage access programs might be helpful to workers with unexpected expenses because it is an alternative to high-cost payday loans.

Basically, these programs allow workers to access wages they have already earned ahead of the regular payday — much like payday loans.

If providers charge workers high fees or provide early access to such an extent that it allows what ends up just like repeated balloon-payment loans, it is not so helpful.

Early wage access might be a good thing when used occasionally,  but if there are charges, interest and other fees, they can add up, and result in a situation much like what we see in payday loans.   

The National Consumer Law Center has outlined the differences in the types of earned wage access services as follows: 

Employer-based or direct-to-consumer
Employer-based services operate through a contract with the employer that allows the program to access time-and-attendance records to determine actual earned wages.

Direct-to-consumer programs have methods of estimating earned wages but not with certainty, and they do not need employer approval.

Repayment method
Employer-based services usually are repaid by payroll deduction or other mechanisms through the employer.

Direct-to-consumer and some employer-based services debit bank accounts and can trigger nonsufficient funds (NSF) or overdraft fees when the timing or estimate of the paycheck is off.

Fees. Some providers charge no fees to the worker.

Fees in other programs range from $2.50 per day to $6 per month.

They can be per advance, per pay period, or monthly for a package of services.

Fees may be higher if you want the wages right away.

Some direct-to-consumer models actually rely on purportedly voluntary “tips” but may make it difficult not to tip.

Some of the other options are frequency of access and limits on how much you can access

Frequency of access. Many employer-based services limit access to once or twice a pay period, but others may allow access on a daily basis.

Access limits. Many services OR employers limit access to 50% of gross or net earned wages, ensuring that the worker will receive at least half of their paycheck on payday.

Others allow (and even encourage) “use-it-or-lose-it” access up to 100% of wages earned in a given day.

Although many providers claim their programs aren’t providing loans, if they are fee based and not restrictive, a worker can end up in a cycle of debt much like a payday loan.  The only difference in the early wage access program and living paycheck to paycheck is that your paycheck might get reduced more and more with each pay period with an early wage access program.  State and federal lending laws include fee and rate limits and require certain disclosures. Providers may claim their program is not providing loans and not subject to those laws that protect consumers.

NOTE:  A bill (S. 532) was recently introduced in South Carolina focused on allowing the employer-based model of early wage access programs to operate here.  Providers would have to register the S.C. Department of Consumer Affairs and post a bond. The Department would receive complaints from consumers as they do in other consumer matters. Under the law, the early access services would not be considered a form of lending.

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