The Rise of “FringeTech”: Regulatory Risks in Earned-Wage Access
By many accounts, the financial technology, or FinTech, sector appears to have developed an innovative solution to assist low-income workers with income shortfalls between standard paydays by displacing fringe financial service providers, namely payday lenders. Earned wage access programs facilitate early transfers of earned-but-unpaid wages to low- income workers through mobile platforms, algorithmic technology, and GPS tracking. To many, earned wage access programs represent a win-win for employees and employers. These programs are believed to be cheaper and safer alternatives to payday loans. Preliminary research also suggests these programs improve labor-retention rates for employers and help reduce financial distress for low-income employees. Consequently, a growing number of employers, including Walmart Inc. and Amazon.com, Inc., have partnered with earned wage access providers to offer these programs as an employee benefit. Employees may also use third-party providers that bypass employers to offer these programs directly through mobile-app stores. In less than a decade, this nascent market has impressively achieved national scale, hundreds of thousands of employer partnerships, millions of users, and billions of dollars in transactions. Yet, notwithstanding and perhaps because of these early successes, these programs also have downsides that have been much less emphasized. In particular, although the gatekeeping role that employers may play when partnering with earned wage access programs has the potential to facilitate improved pricing and service terms in the fringe financial market, such a role also masks significant costs that are not fully disclosed to employees. Additionally, the earned wage access market creates detrimental regulatory blind spots and enables regulatory arbitrage by blurring the lines between once-distinct financial services: money-transmission services and loan services. Earned wage access programs have largely operated with minimal legal constraints because they have generally been characterized as money- transmission services, rather than loan services like payday loans. Building on the FinTech literature, by analogy, this Article argues that this blanket characterization of earned wage access programs is a mistake. Earned wage access programs have varying effects. In the absence of regulatory guardrails, some programs can perpetuate, and in some instances exacerbate, the very risks providers claim to eliminate when displacing short-term creditors like payday lenders. This Article proposes a federal-level regulatory framework based on lending laws that addresses some of these unmitigated risks through the imposition of consumer-protection requirements such as uniform price disclosure, ability-to-repay rules, optional amortization mechanics, mandatory credit reporting, and a right-to-rescind assignment. In doing so, this Article aims to facilitate growth of the earned wage access market’s functional improvements and prevent a mere shift to fringe FinTech, or “FringeTech,” services.