Inflation Increases Demand for Earned Wage Access

EWA products can act like payday loans, create cycle of dependence

Andy Spears

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Photo by rupixen.com on Unsplash

The realities of inflation — even as it slows — mean workers want access to their pay as soon as possible. Managing cash flow as costs rise quickly over time means accessing your pay at the earliest possible date.

That’s where earned wage access (EWA) products come into play.

These products allow employees to access a portion of their wages BEFORE payday — sometimes for a fee, often with no interest.

The app-based products mean workers can essentially get paid (at least a little) when they want and can use those early deposits into their bank accounts to manage their overall cash flow.

American Banker reports that fintech companies offering EWA products are moving quickly to capitalize on the “opportunity” created by the current inflationary climate.

Visa, DailyPay and The Bancorp Bank this week launched a reloadable prepaid card that’s tied to an earned wage access (EWA) feature, or a way for employees to access a portion of their salaries earlier than the traditional two-week pay cycle. The prepaid card is being launched as EWA firms report an increase in adoption, creating a race among EWA providers to reach new employers and users.

This all sounds well and good — and no-fee, no interest early pay can be a great way to help employees gain access to credit in a tight economy.

However, the National Consumer Law Center (NCLC) notes that these products often function as a sort of kinder, gentler payday loan.

Earned wage access products are loans — advances on pay, usually for a fee — and carving a loophole for them will just lead workers to get caught in debt traps and cycles where they are paying to be paid,” said Lauren Saunders, associate director of the National Consumer Law Center.

Time will tell whether these new options are effectively increasing credit to underserved markets OR are acting in predatory roles.

Still, consumers should be wary of earned wage access products and be fully cognizant of fees, costs, and interest attached to such plans.

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Andy Spears

Writer and policy advocate living in Nashville, TN —Public Policy Ph.D. — writes on education policy, consumer affairs, and more . . .