2025 is shaping up to be the year more states carve out earned wage access legislation as industry participants and regulators fight over how the finance product should be classified.
Six states including Connecticut, Kansas, Missouri, Nevada, South Carolina and Wisconsin currently have legislation that regulates EWA products. Most require consumer disclosures and licensing provisions for providers but do not enforce an interest rate cap. Connecticut, unlike other states, defines EWA as small-dollar credit and has implemented a usury cap on EWA, which has forced providers out of the state.
California’s key regulator, the Department of Financial Protection and Innovation, also began overseeing the industry this month absent formal law from the state legislature.
At least eight other states have pending legislation related to EWA, including Colorado, Georgia, Indiana, New Mexico, New York, Oregon, Vermont and Washington. Connecticut also
“It seems like this is high time among state legislatures for these types of bills to be introduced,” said Eamonn Moran, partner at Holland & Knight. “As always with EWA, there’s the divide between states that treat this like credit, and states that don’t.”
The increased activity at the state level comes as the Trump administration looks to again
At least four states – Connecticut, Colorado, New Mexico and Vermont – have held hearings in the last week or two, Yasmin Farahi, deputy director of state policy and senior policy counsel at the Center for Responsible Lending, said.
“I absolutely think we’ll see a lot of [state legislation] this year,” Farahi said. “For better or worse, that probably would have happened regardless of what was happening at the federal level this year. Industry is really hungry to get carve outs in states where they can make that happen. So far, that’s been in states that unfortunately don’t have many protections in place for borrowers around small-dollar lending.”
In fact, 26 states are actively pursuing legislation, said Phil Goldfeder, CEO of the American Fintech Council, an industry trade group. AFC represents EWA providers such as Brigit, DailyPay, EarnIn, Immediate, MoneyLion, Payactiv, Wage Stream and ZayZoon.
“The vast majority of the bills are cementing into regulation and law across the country items like the availability of no cost options, clear disclosures of fees with every transaction, [and] obviously the ability for users to cancel their service at any time,” Goldfeder said.
Interest rate caps represent the proverbial line in the sand between consumer advocacy associations and industry groups, which largely agree on the importance of EWA laws requiring no-cost options, fee disclosures and nonrecourse. Most state laws exempt EWA from state usury regulations.
New York’s latest EWA bill,
“It is a different model in that it does contemplate a total cost cap and says that that will be set by the state regulator,” Farahi said. “A lot of the bills that we’re seeing throughout the country right now and have for the last few years don’t really have a rate cap or a cost cap.”
New York’s bill mandates that EWA transactions must:
- Arrive at least one business day before payday;
- Be nonrecourse and not subject to debt collection;
- Disclose all fees;
- Disclose that “tips” are unnecessary and default to zero;
- Not use unearned income to pay old EWA costs; and
- Not exceed an unspecified percentage of earned but unpaid income.
The bill also would subject EWA products to a rate cap, but not the state’s 16% civil usury cap. Instead, EWA products would be subject to an interest rate cap that would be later specified by the superintendent of the state’s regulator, the Department of Financial Services.
The bill in its current form would significantly impact industry EWA providers in New York, Holland & Knight’s Moran said. “Not just the licensing requirements, but the rate cap, which will limit the amount that could be charged for EWA transactions.”
New York often provides broad regulatory and rule writing authority to the superintendent, Moran said.
“Even the governor’s office purports to do that,” he said, but noted: “The fact that the rate cap is not actually going to be statutorily defined and would be left up to the superintendent is a bit interesting, because that definitely gives the superintendent a lot of authority and power to come up with whatever that rate cap would be.”
Assembly Member Clyde Vanel (D-NY) who sponsored the bill, said that putting the interest rate cap decision into the hands of the Department of Financial Services would make the state “more nimble.
“We want to make sure that there’s a fair cap on interest rates,” Vanel said in an interview. “I can imagine if there’s a situation where folks are going to be high risk borrowers, and … we were contemplating if there’s a world where they are able to get financial services for a reasonable percentage rate.”
The bill’s sponsors are still working through some substantive issues, such as how frequently people can access the service, but Assembly Member Vanel is confident the bill will cross the finish line this year, he said.
“We’re close to finding the right language,” Vanel said. “We’ve been working with the Senate and stakeholders to get to the right place. So I think there’s a high likelihood of this bill getting over the hump [this year].”
AFC’s Goldfeder, who previously served in the New York State Legislature with Vanel and has been working with his office for the last two years, is also confident that the bill will become law this year.
“It’s just a question of the various business models,” Goldfeder said. “It is more than just one or two companies. There’s sort of multiple business models and subscription models or other nuances to the offering [that need to be addressed].”
The law could use additional specificity as to who is on the hook, said Keith Barnett, partner at Troutman Pepper Locke.
“Some EWA companies are fintechs that provide software to an employer or payroll processor to allow for the early payments. Other EWAs take custody or send funds to the employees,” Barnett said. “Although it appears that the law would only apply to EWA providers who send funds directly to employees or take custody of funds, this needs to be clearer in the final version of the law, if passed.”
The usury carve-out is particularly concerning to the Center for Responsible Lending, Farahi said.
“Our suggestion would be that this isn’t the right approach, that you need to enforce these under the existing user cap, and that allowing a carve-out also potentially creates opportunities for other types of carve-outs and lenders to come in,” Farahi said.
“As soon as you do this thing where you say, ‘Well, there should be a cap, but we’re going to take it outside of the existing cap for other loan products,’ that’s problematic.”