What is the difference between a payday loan and an earned wage access program? I thought you would like to know.
The payday loan has been around for a long time. It is based on the concept that the borrower has a job, expects to receive a salary on a certain date and, after receiving the salary, will be able to repay the loan at that time. That sounds reasonable from a lending perspective, though we know a lot can go wrong when expectations don’t materialize. Furthermore, the rate of interest permitted under various state laws has made this type of loan subject to the charge of “predation.”
An Earned Wage Access (EWA) program is different, not only in concept but in reality. Is it even a loan? It works like this: the employee, as an employee or employee, receives his salary at a fixed time of the month. Typically, this can be at the end of every week, every two weeks, or at the end of every month. During each of these periods, it is likely that there are already days of work, but no compensation has yet to be paid for this work previously performed. An EWA is designed to allow the employee to access this earned but unpaid compensation prior to payday. Such programs can often provide access to earned wages at no cost or at nominal cost to the employee, by charging a percentage of those earned wages to a debit card or ACH transfer to the employee’s bank account.
So, although there is a difference between a personal loan and an EWA, is it an indiscriminate difference? Some say yes, others say no.
In a pro/con analysis, the catch against a payday loan is usually the cost involved. The pro is the availability of funds to the borrower for those unexpected emergency costs. And payday loan proponents have long said there’s nothing wrong with the product itself – harm only comes if the product isn’t used responsibly.
An EWA allows employees to access their earned wages earlier than expected by employers. An EWA agreement, assisted by an employer, can be considered an employment benefit granted to employees. Certainly, in a capitalist society, individuals should be free to access their assets and use them as they see fit. (Let’s not talk about the family budget which seems like a lost art anyway.)
Many states have laws regarding both payday loans and EWA programs. Additionally, federal wage and hour laws impact EWA programs.
“And now”, as Paul Harvey said, “you know the rest of the story”.