New Rules Could Transform Instant Pay Benefits
Federal regulators are moving to classify earned wage access programs as consumer loans, signaling a major shift for this rapidly growing employee benefit. The Consumer Financial Protection Bureau’s proposed rule could reshape how companies like Walmart, Bath & Body Works and McDonald’s offer early access to earned wages.
The Numbers Tell the Story
More than 7 million workers accessed approximately $22 billion in wages before their scheduled paydays in 2022. Currently, 16% of employers offer payroll advances. CFPB analysis shows the typical earned wage access user faces fees amounting to a 109.5% annual percentage rate. When employers don’t cover costs, over 90% of workers paid at least one fee in 2022 to access earnings early.
Why Companies Offer Early Pay Access
The surge in instant pay benefits reflects growing economic pressures. One-third of U.S. workers report living paycheck to paycheck, with the situation more acute among younger workers—83% of employees aged 18-24 consider instant pay benefits important.
The benefit has become a competitive advantage, particularly in retail. Major companies use these programs to attract and retain talent amid financial stress, with 53% of workers reporting their paychecks aren’t keeping pace with inflation.
What’s Changing
Under the proposed rule, early wage access programs would fall under the Truth in Lending
Act, requiring lender disclosure of all costs and fees. Companies must provide additional disclosures to users, express all costs as an APR, face increased regulatory oversight, and ensure lending compliance.
Impact on Employers
Companies offering earned wage access benefits face a complex transition. The new requirements mean reviewing and possibly restructuring current programs to meet lending regulations, while revamping benefit communication strategies.
Companies that don’t cover early wage access fees could be hit hardest. These employers must prepare for greater cost transparency and potentially navigate new relationships with third-party providers to maintain compliance.
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Copyright © 2024 Smarts Publishing. This is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.
