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As Californians do their best to recover from the long-lasting effects of the pandemic and adjust to the realities of record inflation, many find themselves in difficult financial times. More and more people are living paycheck to paycheck, leaving little to soften the blow of costly emergencies like car repairs or unexpected medical expenses. In the past, when confronted with such challenges, workers had few options at their disposal to get over the hump, and none of them good. However, thanks to tech innovation, workers who need intermittent help now do have a good option to meet their financial obligations: Earned Wage Access (EWA).
Over the past few years, EWA services have emerged and allowed employees to bridge unexpected financial gaps by accessing portions of their paychecks in the period after they complete work but before they receive their paycheck. Tech companies that offer EWA services offer this without requiring employees to take out loans with high interest rates or in some cases incur any fees at all. It sounds too good to be true, but it’s real, and it’s already working for hundreds of thousands here in California and millions of workers throughout the country.
EWA providers have created a streamlined and transparent process where employees can use an app to help bridge cash shortages. The process is simple, EWA service companies transfer funds to the employee and the providers recoup that money from the employees next paycheck. These services charge no interest.
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As an example of how these services are sustained, some charge a small fee per transaction. California-based EarnIn gives employees the option of offering a tip through the app – generally one dollar or so – to “pay it forward” so EWAs can continue to offer the service to others. And some companies offer expedited services for an extra fee – again, usually around one to three dollars depending on the amount requested, so funds can be transferred to the employee within one- or two-hours versus one or two days. With millions of users, these small fees add up to enough to allow businesses to operate.
EWA services are helping countless workers reduce their financial stress and achieve peace of mind as they struggle to make ends meet. More importantly, these services help employees avoid incurring exorbitant bank overdraft fees as a way to bridge the gap when times are tight. Furthermore, EWA services do not generate credit reports or impact employee credit ratings in any way. Finally, EWA is saving employees money, reducing overdraft charges by $250 million between 2021 and 2022 alone.
Unfortunately, the California Department of Financial Protection & Innovation (DFPI) has proposed new rules that would make it much harder for wage earners to access their money. If these rules go into effect, EWA services would be misclassified as loans and could disrupt free, pro-worker EWA services in the state.
As president and founder of a Southern California-based non-profit organization focused on uplifting Asian communities, I strongly oppose this move by DFPI and urge them to reject the proposed new rule. Our Asian communities – proudly entrepreneurial and hardworking – are struggling in these hard economic times. Indeed, a UCLA Study found that the pandemic disproportionately harmed Asian small businesses in Southern California, with 60 percent of these businesses reporting a large negative impact from the pandemic, compared to 40 percent of California businesses overall. This, coupled with the inflation we are all experiencing, has resulted in many Asian workers finding their dollars stretched, making it sometimes difficult to meet financial obligations.
EWA services should not be unnecessarily regulated, limiting possibly taking away a service that helps hard working when they most need it.
Marc Ang is President and Founder of Los Angeles-based Asian Industry B2B.
