Amendments to the Earned Wage Access Act

NOTE: Prior to task force meetings, ALEC posts these legislative member-submitted draft model policies to our website. The draft model policies are then discussed, debated, and voted on by ALEC task force members. Policies that receive final approval by legislators on the ALEC Board of Directors become official ALEC model policy. Draft model policies that fail to become official ALEC model policy are removed from the website.

Summary

This model policy defines terms, enacts provisions related to Earned Wage Access Services, including provider registration, provider operations, and provider reporting. SEE AMENDMENTS IN PDF

Amendments to the Earned Wage Access Act

Definitions

(1) “Consumer” means a natural person residing in [STATE]

(2) “Earned but Unpaid Income” means funds that are based on wages, compensation, or income that a Consumer has represented, and that a Provider has reasonably determined, have been earned or have accrued to the benefit of the Consumer but have not, at the time of the remittance of Proceeds, been paid to the Consumer by an Obligor.

(3) “Earned Wage Access Services” means the business of delivering Proceeds to Consumers prior to the next date on which an Obligor is obligated to pay salary, wages, or other monetary benefits to the Consumer.

(4) “Non-Recourse” means that a Provider cannot compel or attempt to compel repayment by a Consumer of Outstanding Proceeds or Non-Mandatory Payments owed by that Consumer to that Provider through any of the following means:

(a) A civil suit against the consumer in a court of competent jurisdiction.

(b) Use of a third-party to pursue collection of Outstanding Proceeds or Non-Mandatory Payments on the Provider’s behalf.

(c) Sale of outstanding amounts to a third-party collector or debt buyer.

The term non-recourse does not preclude the use by a Provider of any of the foregoing methods to compel or attempt to compel repayment of outstanding amounts incurred by a consumer through fraudulent means.

(5) “Obligor” means an employer or another person, including an independent contractor, who is contractually or legally obligated to pay a Consumer any sum of money on an hourly, project-based, piecework, or other basis. Obligor does not include the customer of an Obligor or another third party that has an obligation to make any payment to a Consumer based solely on the Consumer’s agency relationship with the Obligor.

(6) “Outstanding Proceeds” means Proceeds remitted to a Consumer by a Provider but not yet repaid to that Provider.

(7) “Mandatory Payment” means an amount determined by a Provider, which must be paid by a Consumer to that Provider as a condition of receiving Proceeds.

(8) “Non-Mandatory Payment” means an amount paid by a Consumer or an Obligor to a Provider for Earned Wage Access Services, which does not meet the definition of a Mandatory Payment. For purposes of this section, examples of non-mandatory payments include, but are not limited to the following:

(a) A fee imposed by a Provider for delivery or expedited delivery of Proceeds to a Consumer, as long as the Provider offers the Consumer at least one option of receiving Proceeds at no cost.

(b) An amount paid by an Obligor to a Provider on a Consumer’s behalf, which entitles the consumer to receive Proceeds at no cost to the Consumer.

(c) A subscription or membership fee imposed by a Provider for a group of services that include Earned Wage Access Services, as long as the Provider offers the Consumer at least one option of receiving Proceeds at no cost.

(d) A tip or gratuity paid by a Consumer to a Provider, as long as the Provider offers the Consumer at least one option of receiving Proceeds at no cost.

(9) “Proceeds” means the amount of Earned but Unpaid Income that has been remitted to a Consumer by a Provider.

(10) “Provider” means a person who is in the business of offering and providing Earned Wage Access services to Consumers.

(a) “Provider” does not include:

(i) A service provider, such as a payroll service provider, whose role may include verifying the available earnings but is not contractually obligated to fund any proceeds delivered as part of an earned wage access service; or

(ii) An employer that offers a portion of salary, wages, or compensation directly to its employees or independent contractors before the normally scheduled pay date.

(iii) A depository institution licensed or chartered under state or federal law, whose deposits are insured by the Federal Deposit Insurance Corporation or National Credit Union Association, or a wholly owned subsidiary of such depository institution.

(11) “Superintendent of the Department of X” means the head of the XX Department of X.

Provider Operations

(1) A provider that operates in the State of XX shall be subject to the following requirements:

(a) A Provider shall provide all Proceeds on a Non-Recourse basis and shall treat Non-Mandatory Payments as non-recourse payment obligations.

(b) Before providing Proceeds to a Consumer, a Provider shall inform the Consumer, in writing, of any Non-Mandatory Payments that may be associated with the provision of Earned Wage Access Services by that Provider.

(c) Every time a Provider provides Proceeds to a Consumer, the Provider shall inform the Consumer when the Provider will make its first attempt to seek repayment of those Proceeds from the Consumer.

(d) A provider that seeks repayment of Proceeds from a Consumer’s depository institution account shall comply with applicable National Automated Clearinghouse Association rules.

(2) A provider that operates in the State of XX shall not do any of the following:

(a) Require a Consumer to make a Mandatory Payment.

(b) Charge a late fee or any other penalty charge for failure to repay Outstanding Proceeds.

(c) Condition the amount of Proceeds provided to a Consumer on the size of a Non-Mandatory Payment made by that Consumer to that Provider. This prohibition shall not be construed to prohibit a Non-Mandatory Payment equal to a percentage of Proceeds provided, as long as the percentage applied does not vary based on the amount of Proceeds provided.

(d) Condition the frequency with which Proceeds are provided to a Consumer on the size of a Non-Mandatory Payment made by that Consumer to that Provider. This prohibition shall

(e) not be construed to prohibit a Non-Mandatory Payment equal to a percentage of Proceeds provided, as long as the percentage applied does not vary based on the amount of Proceeds provided.

(f) Report a Consumer’s payment or failed repayment of Proceeds to a consumer credit reporting agency or a debt collector.

(g) Require a credit report or credit score to determine a Consumer’s eligibility for Earned Wage Access Services.

(3) Proceeds provided to a Consumer by a Provider in accordance with this section shall not be considered credit, the Provider of those Proceeds shall not be considered a creditor, and Non-Mandatory Payments paid to that Provider shall not be considered finance charges, for purposes of the federal Truth in Lending Act.

(4) Proceeds provided to a Consumer by a Provider in accordance with this section shall not be subject to the State of XX’s Lending or Money Transmission Law, and the Provider of those Proceeds shall not be required to be licensed under the State of XX’s Lending or Money Transmission Law.

Enforcement

(1) If, upon inspection, examination, or investigation, the Superintendent has cause to believe that a Provider is violating any provision of this division or any rule or order thereunder, the Superintendent or his or her designee, may issue a notice to the Provider in writing, describing with particularity the basis of the alleged violation.

(2) The Superintendent shall have enforcement authority over Earned Wage Access Service Providers that is consistent with the Superintendent’s enforcement authority over other types of financial service providers regulated by the Superintendent.

Remaining Enforcement Provisions Shall Be Based on Enforcement Provisions

Common to Laws of the Particular State in which the Model Law is introduced