The California legislature seems determined to pass the most ludicrous laws designed to harm as many people as possible, while purporting that all this inane legislation is for our own protection.
Yet, like a broken clock that correctly tells time twice a day, the legislature appears headed to pass a bill that is very good for the average worker. Even they get it right once in a while.
SB 472 clarifies and legalizes a revolutionary financial services product known as Earned Wage Access, also called Early Wage Access. The product allows employees to get access to wages they have earned but not been paid on.
The product would make expensive payday loans, which many Americans use to make ends meet, obsolete. Isn’t it funny how the free market eventually comes around to kill untenable products?
Several fin-tech start-ups have brought different versions of this product to market. Employees generally access a smartphone app that allows them to see how much they have earned during the current pay period, and then allows them to access up to 50 percent of that amount.
The cost varies, but it is somewhere between $5 and $9 per pay period, depending on how often the app is accessed.
The product is a huge win for employees. The traditional two-week pay cycle does not care about when bills are due or when creditors must be paid. Consequently, over 16 million American workers must turn to some form of unsecured short-term credit every year. Almost 12 million use payday loans.
In California, the cost for a $255 loan (which must be repaid on the consumer’s next payday) is $45. That’s equivalent to $17.60 per hundred borrowed.
With Earned Wage Access, the cost could be as low as $1 per hundred advanced. That’s because the provider who floats the employee their money in the interim will be allowed under the bill to be repaid directly from the employee’s payroll account at their job.
The average employee who uses payday loans in California could save hundreds of dollars every year, at a minimum.
The legislature has actually put a great deal of thought into this bill, and done its due diligence in regards to Earned Wage Access. The bill has been revised several times, so that reasonable consumer protections (such as monthly maximum charges) are in place, and so providers can’t do end-runs around the legislation to create loopholes in order to charge employees more.
With Earned Wage Access, employees from all walks of life will be able to more efficiently plan out their household budgets. Whereas an emergency might previously have forced them into the arms of payday lenders, they can now simply access their own money before payday rolls around.
There remain a number of challenges in regards to Earned Wage Access. Few employers presently offer it, so the industry is in desperate need of skilled communications and messaging regarding the usefulness of the product.
Indeed, not only is it a lifesaver for employees, employers will see enhanced benefits. Financial stress causes declines in worker productivity, which Earned Wage Access would relieve.
Additionally, HR staff at many companies are overwhelmed as it is, and while there is plenty of support for enhanced employee financial wellness, they can be too quick to refuse the product in the false belief that it is a loan that might get employees into trouble.
California’s bill wisely creates a carve-out for the product, explicitly saying it is not a loan, thereby enabling the product. That helps those who seek to educate HR staff.
There remain some questions about the technical classification of Earned Wage Access at the federal level, as well as in other states. Yet the important core point is that the product is a winner for all involved, it is a “payday loan killer”, and offers tremendous benefits for workers who have been suffering while trying to make ends meet for years.
The bill has passed out of nearly every committee by a unanimous bi-partisan vote. When the legislature reconvenes in January, the Assembly’s Banking and Finance Committee will pick it back up.
The California legislature needs to pass this bill.