Financial technology companies that issue loans through mobile apps at annual interest rates above 330 %, marketing these loans as earned wage access (EWA), are quietly draining the financial resources of Americans who can least afford it.
EWA loans are structured in the same way as payday loans: they advance money to consumers using the lender’s own capital, with repayment taken from the consumer’s next paycheck. It is a high-cost loan disguised as wage access.
As representatives of organizations dedicated to the financial stability of workers and consumers, we urge lawmakers to uphold our state’s decades-long commitment to protecting consumers from abusive lending practices.
Connecticut is in good company as one of 20 states, plus the District of Columbia, that legally require payday lenders, like EWA companies, to disclose the annual interest rates of their loans and to cap those rates at no more than 36%. Further, the Maryland attorney general recently made it clear that EWA lenders operate in violation of Maryland’s interest rate cap. What is more, the attorney general for the District of Columbia sued EarnIn, an EWA lender, for charging illegally high interest rates and failing to get a lending license.
The unconscionable finance charges, akin to those imposed by payday lenders, trap people in debt. California’s financial regulator found these products pull consumers into an expensive cycle of reborrowing. Its report on several leading companies showed the average EWA borrower took out 36 advances per year. The Consumer Financial Protection Bureau (CFPB) found similarly high levels of repeat usage. The Center for Responsible Lending uncovered evidence that, contrary to fintech company claims, people incurred more overdraft fees after starting to use the product. The Center’s research also showed that nearly half of consumers take loans from multiple EWA lenders within the same month, leaving them with even less money on payday and forcing them to reborrow.
Rather than helping people get ahead financially, these predatory loans are pulling people further behind.
Last legislative session, a few Connecticut lawmakers proposed a carve-out that would allow some EWA lenders to charge up to $30 per month in loan transaction fees, representing a finance charge well above the state’s interest rate caps. EWA lenders who testified on the bill vehemently opposed even these high cost carve-outs, weaponizing consumers and villainizing regulators who sought to ensure appropriate safeguards.
Our commitment to opposing predatory lending practices is not just about one financial product; it’s about protecting all Connecticut citizens from exploitation. EWA lenders target low-income, low-wage workers, gig workers, and middle-income earners. These individuals deserve the same legal rights afforded to all other Connecticut borrowers: disclosure of finance charges and compliance with the state’s interest rate cap.
Together, as worker and consumer advocates, we applaud Connecticut’s leadership for holding EWA providers accountable to Connecticut residents and urge lawmakers to continue to do so.
AARP CT State Director Nora Duncan co-wrote this opinion with CT AFL-CIO President Ed Hawthorne; CT Citizens Action Group Executive Director Tom Swan; National Consumer Law Center Managing Attorney Lauren K. Saunders; Consumer Reports Programs Director Chuck Bell; and the Center for Responsible Lending Policy Counsel Monica Burks.