South Carolina embraces new EWA law

South Carolina Gov. Henry McMaster signed a new law May 21 requiring earned wage access providers operating in the state to register annually with the state’s Department of Consumer Affairs.

As part of that registration, the state will require that the EWA providers list fees to be imposed on the employee or employer in providing the services, and include at least one option by which a user can receive earned wage access services at no cost, the new law states.

While the new law imposes other limitations on such providers, the big win for the industry is that the law specifically says EWA services won’t be considered loans and their providers won’t be treated like lenders. That has been a point of contention for the industry as some states and the federal government consider stricter regulations that would force EWA providers to adhere to existing lending laws.

South Carolina Sen. Tom Davis, a Republican who sponsored the legislation, said it brings a “light touch” legislative approach to an industry that is attracting capital and providing workers with an alternative to higher-interest loans. “The providers advocated for this legislation because they want to weed out the bad actors,” Davis said in an interview Thursday. “It is bringing consumer protections and some standards to activity that is already taking place.”

Earned wage access is increasingly being offered to employees as a means to tap their earned wages before a regularly scheduled payday. There are dozens of companies that provide such services through a variety of business models, sometimes working through an employer and sometimes directly with an employee. DailyPay, Payactiv, Earnin, ZayZoon and Clair are among the companies offering EWA services.

“We’re pleased to see overwhelming bipartisan support in the State of South Carolina as it becomes the fifth state to codify earned wage access,” said DailyPay Director of Public Policy Ryan Naples in a Wednesday press release from the company.

South Carolina is the fifth state over the past year to implement new guardrails for the expanding earned wage access industry. It follows Kansas, Nevada, Wisconsin and Missouri in enacting regulations backed by industry players that don’t consider such on-demand pay services to be lending.

The American Fintech Council has supported the five bills and that trade association’s CEO, Phil Goldfeder, said in an interview Thursday that he expects to see more of the same. “We’re optimistic that we’re going to see a lot more (state laws) in the near future” and that these initial five “are the baseline for additional states going forward,” said Goldfeder, who is a former New York legislator.

By contrast, California and Connecticut have taken a different tack, moving to subject EWA payments to lending laws that have provisions for policing interest rates and dictating transparency. 

At the federal level, the Consumer Financial Protection Bureau said in December that it supported the California Department of Financial Protection and Innovation’s approach to EWA and signaled it would issue an EWA policy sometime soon. But so far the CFPB hasn’t taken a clearer stance.

Still, one EWA provider, FlexWage, views the South Carolina law, and others like it, as being at odds with federal guidance on such services, specifically an advisory opinion from the CFPB in 2020.

“The (South Carolina) law is completely inconsistent with the definition provided by the CFPB on EWA,” FlexWage’s vice president of compliance, Carl Morris, said by email. “This legislation has only passed in states that offer payday loans. When we look at the guidance of other states and the CFPB this legislation does not provide a sustainable and scalable product across the U.S.” 

One consumer advocate also takes a critical tone toward the new law. “South Carolina is joining the group of states that permit predatory payday loans and have authorized a new form of fintech payday loan without meaningful protections,” said National Consumer Law Center Associate Director Lauren Saunders, by email.

The South Carolina law imposes restrictions on the fees that EWA providers can charge and how they can impose them. For instance, they can’t share fee income with an employer or charge users a fee for deferring a repayment amount. The providers also can’t “report a consumer’s payment or failed repayment of outstanding proceeds to a consumer credit reporting agency or a debt collector,” the law says.

Also, under the new law, any EWA offering in the state must disclose all fees and make clear that tips, or any kind of gratuities, are voluntary. The law also forces EWA providers to be upfront about the collection of any outstanding fees, telling users if they must consent to repayment via their employer or payroll provider. It also imposes parameters for collecting on repayments from a user’s financial institution.

The EWA provider must also file an annual report with the department, including its “gross revenue” from providing the services; a list of consumer complaints filed with the Better Business Bureau; and a transaction count for the year as well as a user count and the total amount of money provided to users. 

The new law is set to take effect in November, six months after being signed by the Republican governor.