American workers are increasingly using earned wage access to get early access to their paychecks, however, the programs are being compared to payday loans.
American workers are increasingly using earned wage access to get early access to money from their paychecks; however, that early access comes at a steep price.
CNBC reports that earned wage access programs, also known as daily pay, instant pay, accrued wage access, and same-day pay, allow workers to gain a portion of their wages before their payday for a fee, and the service has skyrocketed in popularity.
The programs typically come in two methods: business-to-business, where the service is offered through an employer, and direct-to-consumer, where third-party apps provide the service.
The programs provide benefits such as quick access to cash in an emergency. However, the programs are very similar to payday loans, which can leave people thousands in debt due to high fees and interest rates, and have been banned in Arizona, Arkansas, Colorado, The District of Columbia, Georgia, Massachusetts, Maryland, New Jersey, New York, North Carolina, Pennsylvania, West Virginia, and Vermont.
“When used properly … it’s great,” Marshall Lux, a former senior fellow at Harvard University, told CNBC.
“It’s another version of payday loans,” Monica Burks, policy counsel at the Center for Responsible Lending, a consumer advocacy group, said of earned wage access. “There’s really no meaningful difference.”
However, the study also reported fees can add up for frequent users who access their paychecks early. That has prompted California lawmakers to debate whether to regulate earned wage access programs. Regulating the programs would institute caps on interest rates and fee transparency guidelines.
Another issue with earned wage access is the fees, which can easily become death by a thousand cuts if users are unaware.
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Source: Black Enterprise