Study: Earned Wage Access Overuse Can Hurt Consumers

Is earned wage access (EWA) a useful tool for cash-strapped consumers?

Or just payday lending going by another name?

A report Sunday (Jan. 28) by CNBC examines the rising popularity of these programs, which let consumers access part of their ages in advance of payday, in some cases for a fee. 

The report quotes experts and consumer advocates who say that these programs offer benefits — such as quick access to money in emergencies — but can sometimes share the qualities of high-cost debt such as payday loans.

“When used properly … it’s great,” Marshall Lux, a banking and technology expert and former senior fellow at Harvard University, told CNBC.

But Lux added that overuse by consumers and high fees can turn EWA programs into “payday lending on steroids,” especially since the industry has expanded so quickly.

Employer-sponsored EWA programs let workers access $9.5 billion in 2020, up from $3.2 billion in 2018, CNBC said, citing data from consulting firm Datos Insights. That same data showed transactions jumping from 18.6 million to 55.8 million in the same period.

Steep fees and user dependency “are kind of the darker side of the business,” said Thad Peterson, strategic adviser for Datos Insights, who added that this represents “the exception, certainly not the rule.”

Peterson said a key concern is that consumers can use multiple apps at the same time and take on more debt than they can pay back. These uses “can end up in the black hole of payday lending,” he said, and “you can’t get out of it.”

PYMNTS Intelligence has found that earned wage access can make a major difference to consumers who live paycheck to paycheck, a group that now encompasses about 60% of the U.S. population. 

And these are people who can use emergency funds, with upwards of three-quarters saying they used a substantial percentage of their saved income on a big expenditure at least once.

EWA offers these consumers an alternative to taking on more debt, Rob Nardelli, director of commercial banking and business development at on-demand pay provider DailyPay, said in an interview with PYMNTS last June.

“They’ve earned the hours and wages. EWA just gives them access,” Nardelli said.