How to spot a payday loan posing as “earned wage access”
Protect your employees from predatory payday loans.
By Earned wage access is now mainstream, though its regulation is still evolving. Many major employers are offering their employees this new benefit to access their own pay between pay cycles, with no repayment obligation. Earned wage access has helped employees minimize requests to employers for advances and from having to take out a loan from a payday loan vendor.
However, employers who want to offer this benefit must be aware that payday loan providers are defining their services as “earned wage access”. Making it difficult to distinguish between the two is an intentional choice by payday loan providers. But spotting a payday loan is simple. The number one red flag is the interest rate. No true earned wage access option will ever come with an interest rate.
The average interest rate on a payday loan is 391%.1
A true earned wage access provider will never charge any interest. With earned wage access, there is no repayment involved.
A 2024 survey conducted by Payroll.org saw that 60% of Americans live paycheck to paycheck2. At its core, Fourth’s earned wage access is a way for employees to access pay they have already earned, between pay cycles, to manage unexpected bills or emergencies. With Fourth’s earned wage access solution, already-accessed wages are deducted from the employee’s next paycheck and the employee does not have a repayment obligation.
The processing fees associated with Fuego earned wage access services – which are only applicable if users do not use a (fee-free) Fuego card – are comparable to fees for drawing cash from an ATM. Fuego also provides financial wellness tools as part of the earned wage access solution to ensure employees make financially savvy decisions on when and how much to draw.
To bring this to life, say Martha works shifts at a restaurant and has earned $800. But she doesn’t get that pay for another 7 days. However, her car needs repairs costing her $100. Plus, Martha needs her car to get to work. With earned wage access, Martha can draw the $100 from what she has already earned, interest-free, and for a $1 processing fee get that $100 within 1-3 business days, as is typical for most bank transfers, or up to a $3 processing fee to access it within minutes, in true emergencies. Many earned wage access providers also offer a prepaid card to draw funds within minutes, fee-free. There is no catch. In this scenario, Martha is not borrowing money from her EWA provider – she is simply using the service to access her already-earned wages. There is NO interest.
Regulation is still evolving for this financial benefit, and at Fourth we will always comply with what states require – including: obtaining licenses to operate in that state and staying within the set thresholds on fees. We hope that employers will understand that true earned wage access solutions are interest-free and consider making EWA available to workers who may be living paycheck to paycheck with little to no financial leeway for emergencies
The CFPB provided an advisory opinion in 2020 that clarifies that a “Covered EWA Program” does not involve the offering or extension of “credit” as defined by Regulation Z.3
As regulation progresses and the market grows with both authentic and dubious earned wage access offerings, it is only natural for confusion to arise. Fourth’s earned wage access solution aligns with the tenets of CFPB’s Covered EWA Program. Here is a comparison guide to using Fourth’s earned wage access and a payday loan.
Here is a comparison guide for Fourth’s EWA solution and pay day loans:
| Fourth’s Fuego Earned Wage Access (EWA) | Pay Day Loan | |
| The transaction amount can be more than the earned wages an employee has earned up. | No | Yes |
| Providers assess the credit risk of individual employees. | No | Yes |
| Provider contracts with the employer. | Yes | No |
| Funds drawn can be transferred into an account of the employee’s choice. | Yes | No |
| The provider recovers the amount of each EWA transaction through an employer-facilitated payroll deduction from the employee’s next paycheck. | Yes | No |
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