California Regulator Says FlexWage Earned Wage Product Not a Loan

Advocate Andy

FlexWage earns favorable ruling from California Department of Financial Institutions

The California Department of Financial Protection and Innovation (CDFI) issued an opinion that said that FlexWage's earned wage access product is not a loan under California law and therefore does not fall under the regulatory purview of CDFI.

Earned wage access products are typically apps that allow an employee to access a portion of expected wages several days in advance of their typical payday. The employee then receives a payday that is reduced by the amount of the cash advance plus any fee associated with the use of the product.

The ruling suggests that FlexWage is not a loan under California law because the funds are paid directly from the employer, rather than through a third party and because the fees associated with using the product do not exceed an allowable administrative fee. Further, CDFI noted that FlexWage does not attempt to cross sell other products to consumers accessing the product.

The fee is $9 biweekly or $16 monthly, depending on the employee's pay schedule and frequency of accessing the product.

Consumer advocates have warned that some earned wage access products act in ways that are similar to predatory payday loans.

The services “are just a kinder version of payday loans,” National Consumer Law Center (NCLC) Associate Director Lauren Saunders said.

In fact, Saunders testified before a House Financial Services Committee Task Force recently about the potential dangers of EWA products.

Earned wage access products are a form of payday loan — wage advances repaid on payday — and should be regulated as credit,” Saunders said.

Lynne Marek in Payments Dive reports:

The issue has taken on more importance as workers increasingly use earned wage access (EWA) services. U.S. households tapped such services nearly 56 million times last year for about $9.5 billion in pay under such employer-based programs, according to estimates from research firm Aite-Novarica. In addition, millions more have downloaded apps that provide cash advances on their pay without employer participation, the firm said in a February report on the trend.

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Andy Spears is a middle Tennessee writer and policy advocate. He reports on news around public policy issues - education, health care, consumer protection, and more.

Nashville, TN

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