Lawmakers Review Benefits and Risks of Financial Tool for Cash-Strapped Workers

There’s
plenty of evidence that many Oregonians live paycheck to paycheck — 45% of households
do, according to a 2024 survey.

And
more than 145,000 Oregon workers, according to industry sources, have taken
advantage of a relatively new — and currently, in Oregon, unregulated — tool
called “earned wage access,” or in the parlance of the financial technology
companies that offer them, EWA.

Here’s
how EWA products function: Workers either sign up with a provider who partners
with their employer, or access third-party apps that allow them to take an
advance against wages they have earned but not yet been paid.

The former site of a payday lender on SE Powell Boulevard in Portland. Credit: Blake Benard

The
EWA provider — there are many — then charges a fee for that service (and in
some cases, asks the worker for tips as an additional form of compensation).

At
issue in Salem (and in other states) is how the fast-growing industry should be
regulated.

Providers
have proposed legislation that would require them to be licensed by the Oregon
Department of Consumer and Business Services and limit fees to no more than $7
per transaction.

In
testimony on Senate Bill 481, EWA providers emphasized the need for their product and
said that state licensure would weed out bad actors, while providing a better
alternative to other sources of short-term cash, such as payday loans, credit
card advances or bank overdrafts. They argue that advances are not loans; that
providers don’t send late payers to collections agencies; and they do not
charge interest (instead, they charge a flat fee).

“The
access fee for EWA services is comparable to the average ATM fee, and is
functionally the same service,” Garth McAdam, the general counsel of ZayZoon,
an Arizona EWA provider, told lawmakers this week. A 2023 Harvard Kennedy
School study found workers really like the product.

But
consumer advocates pushed back hard against the industry, telling lawmakers in
a Feb. 4 public hearing that EWA is just another form of high-interest lending,
a newer version of the predatory payday loans that Oregon has previously
cracked down on.

“This
bill is an industry initiative designed to exempt earned wage/income access
(EWA) products from state lending laws while failing to provide meaningful
consumer protections,” Chris Coughlin of the Oregon Consumer Justice testified.
“Don’t open the door to the next generation of payday loans.”

Other
groups, including AARP Oregon, Service Employees International Union, the
Oregon Law Center and the National Consumer Law Center signed on to Coughlin’s
testimony.

EWAs
are regulated differently across the country. Consumer advocates pointed to
Connecticut and Maryland as two states that are doing a good job of looking out
for the workers who use the products.

Federally,
the nonpartisan Congressional Research Service took a look at EWAs in 2024. In a report, the agency noted that EWA
use is widespread and growing rapidly — in 2022, 10 million Americans used them
to access $32 billion in cash advances.

The
federal Consumer Financial Protection Bureau moved away from an initial 2020
opinion that EWA should not be regulated as credit instruments, i.e., loans.
The watchdog agency moved last year toward a position that EWA should in fact
be regulated like loans.

Part
of the reason: In a study, the feds found “the average effective annual
percentage rate (APR) of employer-partnered EWA was 109%.”

Consumer
advocates point to that kind of rate and the fact that EWA customers tend to
use the products over and over as evidence Oregon should regulate EWA strictly.
EWA providers say the high interest rate is misleading because workers only use
the advances for a short period of time before getting their paychecks.

There
will be plenty of further debate on the matter. SB 481 got a public hearing
that stretched over two sessions of the Senate Business and Labor Committee
last week, and committee chair Sen. Kathleen Taylor (D-Portland) said she’ll
bring the bill back for further consideration.

—This story was produced by the Oregon Journalism Project, a nonprofit investigative newsroom for the state of Oregon. Learn more at oregonjournalismproject.org.

This article appears in The Source Weekly February 6, 2025.