Senate Bill Report — SB 5328

Summary

A Senate bill report on SB 5328, as of January 29, 2025, prepared by nonpartisan staff of the Senate Committee on Business, Financial Services & Trade for committee activity on January 30, 2025. The bill would create the Washington State Earned Wage Access Services Act and require earned wage access providers to obtain a license from the Department of Financial Institutions beginning July 1, 2026. The background describes employer-integrated and consumer-directed earned wage access models, CFPB actions and other states' approaches. Under the bill these services would not be classified as loans, and licensees could not require credit checks, charge late fees or exceed a per-transaction fee cap, with disclosure rules for tips. The report describes the department's licensing and enforcement powers, including fines of up to $100 per day per violation.

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                            SENATE BILL REPORT
                                  SB 5328

                                      As of January 29, 2025

Title: An act relating to establishing a new chapter for the licensing and regulation of businesses
     providing earned wage access services.

Brief Description: Establishing a new chapter for the licensing and regulation of businesses
     providing earned wage access services.

Sponsors: Senators Lovick, Dozier and Nobles.

Brief History:
     Committee Activity: Business, Financial Services & Trade: 1/30/25.


                                     Brief Summary of Bill
           • Creates a licensure framework for earned wage access services to be
             regulated by the Department of Financial Institutions.
           • Excludes earned wage access services from being classified as loans,
             credit, or money transmission services, and fees are not considered
             interest or finance charges.


SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES & TRADE

     Staff: Clint McCarthy (786-7319)

     Background: How Employees Get Paid. Since the 1970's, automated clearinghouse (ACH)
     has allowed employers to pay employees without the need for depositing physical checks.
     While some employees still receive physical checks, most use ACH which allows
     employees to get their pay quickly and safely. According to Bureau of Labor Statistics, the
     frequency in which employees are paid is as follows:
         • monthly: 4 percent;
         • semimonthly: 18 percent;




     This analysis was prepared by non-partisan legislative staff for the use of legislative
     members in their deliberations. This analysis is not part of the legislation nor does it
     constitute a statement of legislative intent.

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         • biweekly: 46 percent; and
         • weekly: 32 percent.

     For many employers, there is a lag of time between when an employee has earned their
     paycheck and when they are paid for their time.

     Earned Wage Access Providers. Since the beginning of the 2010's, a number of financial
     technology companies known as earned wage access (EWA) providers have developed
     financial products that allow employees to receive a portion of their earned income earlier
     than when they are due to be paid. There are two types of EWA providers.

     Employer-Integrated Wage Access Services Model. Employer-integrated wage access
     services are products where the provider contracts directly with employers, creating a
     business-to-business relationship. EWA providers that use this model are able to verify
     employment through payroll data provided by the employer. The EWA provider can be
     repaid through a deduction from payroll. The main fee in this relationship is for an
     expedited delivery fee. The cost to the employee can range from free to completely paid by
     the employee. Funds can be distributed to the employee by payroll card or through a direct
     deposit into the employee's bank account. Typically, the employee is limited to 50 to 80
     percent of their earned wages during a pay period, and potentially a limit on the maximum
     amount. The restrictions on the frequency of use is variable, but might be once per week or
     per pay period.

     Consumer Directed Wage Access Services Model. Consumer directed wage access service
     providers work directly with the consumer consumer to provide access to earned wages,
     bypassing the employer. EWA providers using this model verify employment by having the
     employee upload employment records such as pay stubs and time sheets, provide access to
     the employee bank account, and in some cases geolocation. The EWA provider is repaid
     through debiting the employees consumer bank account. Fees can include a subscription
     fee, expedited delivery fee, a per transaction fee, or a tip, or any combination thereof. Free
     options are available, but typically require the consumer open an account or debit card with
     the EWA provider. Funds are distributed to the employee through direct deposit to their
     bank account. There is typically a dollar limit on how much the employee can advance, but
     there is typically no restriction on the frequency for using the product.

     The Regulation of Earned Wage Access Providers. Federal. In July 2024, the Consumer
     Financial Protection Bureau (CFPB) issued a proposed interpretive rule to regulate EWA.
     This is rule based on the CFPB's determination that earned wage products are consumer
     loans subject to the Truth in Lending Act. The key provisions of the rule include:
         • stricter guidelines for financial institutions regarding the disclosure of fees and
           interest rates; and
         • reporting requirements to ensure greater accountability and oversight within the
           industry.



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     On January 15, 2025, the CFPB published an advisory opinion in the Federal Register. The
     publication notes, in the advisory opinion notes, that seeking comment on the rule issued in
     July 2024 was voluntary and the comment period closed on August 30, 2024. The advisory
     opinion also rescinds a previous advisory opinion which the CFPB issued in November
     2020. The November 2020 advisory opinion stated that earned wage products do not
     constitute the offering or extension of credit under the Truth in Lending Act. The 2020
     advisory opinion distinguished between the two models of earned wage products: employer-
     partnered products and direct to consumer products.

     States That Do Not Regulate Earned Wage Access Services as Loans. Since 2003, the states
     of Nevada, Kansas, Missouri, Wisconsin, and South Carolina have established that EWA
     services are not considered loans and they are not subject to banking laws. They are
     regulated by a state regulatory agency, and EWA businesses are subject to licensure
     requirements.

     States That Regulate All or Some Earned Wage Access Services as Loans. In 2023, the state
     of Connecticut enacted legislation that categorized employer integrated wage access
     products and consumer directed wage access products are considered loans that must
     comply with the state’s Small Loan Lending and Related Activities Act. California passed
     legislation in 2024 that categorizes EWA payroll advances as loans and designates
     providers as finance lenders under California law. EWA businesses that use the consumer
     directed wage access services model will have to register with the California Department of
     Financial Protection and Innovation.

     Maryland's Office of Financial Regulation (OFR) provided guidance that the state's law on
     loans under $25,000 does not apply to EWA products and does not apply to EWA payments
     provided by an employer directly to an employee. The OFR's position is that it would
     analyze third party EWA providers that work directly with consumers on a case by case
     basis. In Maryland, some third party EWA providers that work directly with the consumer
     may be considered a lender.

     Summary of Bill: The Washington State Earned Wage Access Services Act Is Created.
      Beginning on July 1, 2026, all EWA providers must obtain a license from the Department
     of of Financial Institutions (DFI). EWA services is defined as a business of providing
     consumer directed wage access services, employer-integrated wage access services, or both.
      EWA services are not classified as loans, credit, or money transmission services, and fees
     are not considered interest or finance charges. Consumer directed wage access services is
     the offer or provision of an advance of earned but unpaid income directly to a consumer
     based on the consumer's representations and the provider's reasonable determination of the
     consumer's earned but unpaid income. Employer-integrated wage access services is the
     business of delivering consumers access to earned but unpaid income through information
     obtained directly or indirectly from their employer.

     Licensure of Earned Wage Access Providers. EWA service providers are subject to


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     background checks, meeting certain financial standards, and satisfying bonding
     requirements.

     Licensees must:
        • pay the annual assessment on or before the first day of March;
        • develop and implement policies and procedures to respond to questions raised by
           consumers and address complaints from consumers quickly;
        • inform the customer of their rights under the agreement as well as disclose all fees
           associated with EWA services, including those fees associated with memberships or
           subscriptions;
        • inform the consumer of any material changes to the terms and conditions of the EWA
           services before implementing changes for the consumer; and
        • allow the consumer to cancel the use of the licensees EWA services at any time;
           without cancellation fee imposed by the licensee.

     Licensees must not:
        • charge fees in excess of $7 per transaction delivery;
        • require credit checks for eligibility; or
        • impose penalties for late payments or use aggressive collection practices.

     Licensees are not allowed to:
        • charge late fees, deferral fees, interest, or any penalty or charge for failure to pay
           outstanding proceeds;
        • report to a consumer reporting agency any information about the consumer; or
        • advertise any false statement with regard to the terms of EWA services.

     EWA providers must provide the consumer with proceeds as agreed upon mutually between
     the licensee and the consumer. The licensee must reimburse the consumer for the full
     amount of any overdraft or nonsufficient fund fees imposed on a consumer caused by a
     licensee not providing proceeds on the date agreed upon between the consumer and the
     licensee.

     Licensees are required to keep books in order to ensure that DFI can confirm that the
     licensee is complying with applicable laws and rules. Each licensee must file a report on
     July 1 of each year with aggregate data related to the transactions that the licensee
     conducted with consumers in the state.

     Tips, Gratuities, or Other Donations from a Consumer to a Licensee. If a licensee solicits,
     charges, or receives a tip, gratuity, or other donation from a consumer, the licensee must:
        • disclose to the consumer immediately before each transaction that a tip, gratuity, or
           other donation may be zero and is voluntary; and
        • disclose that offering EWA services is not dependent on whether a consumer pays
           any tip.



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     Licensees are not allowed to:
        • share with an employer a portion of any fees, voluntary tips, gratuities, or other
           donations that received or charged to a consumer;
        • accept payment of outstanding proceeds, fees, voluntary tips, gratuities, or other
           donations from a consumer by a credit card;
        • mislead or deceive consumers about the voluntary nature of tips;
        • make representations that tips will benefit any specific individual; or
        • present tips as a default option to the customer.

     Department of Financial Institutions Regulatory Requirements. The director of DFI
     (Director) must ensure that EWA services applicants have:
         • paid all required fees;
         • completed their applications for licensure correctly;
         • ensured that the applicant has not had a license issued by the state of Washington or
           any other state revoked or suspended within the last five years of filing for
           application;
         • ensured that the neither the applicant nor its principals have been convicted of certain
           crimes within seven years of filing for an application; and
         • ensured the financial responsibility, experience, character, and general fitness of the
           applicant.

     The Director is responsible for the enforcement of all laws and rules relating to the licensing
     and regulation of EWA services.

     DFI may deny applications when the applicant:
        • fails to demonstrate that it meets the requirements for being licensed;
        • has a violation of an order issued by DFI pertaining to EWA services or another
          chapter;
        • has had their license to provide EWA services revoked by the state of Washington or
          any other state; or
        • has filed an incomplete application.

     The proceedings for denying license application, issuing cease and desist orders, suspending
     or revoking licenses, and imposing civil penalties is governed through the Administrative
     Procedures Act. DFI may condition, suspend, or revoke a license if the licensee has not paid
     fees due to the state, failed to maintain its bond, or failed to comply with any specific order
     demand of DFI. DFI may impose fines of up to $100, per day, per violation, if the licensee
     is found to violated any requirements of the EWA services statutes, or has failed to comply
     with any directive, order, or subpoena issued by the Director under this chapter.

     DFI may engage in informal settlement of complaints or enforcement actions, or
     enforcement actions including payments to DFI for purposes of financial literacy and
     education programs.



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     DFI has rule making authority. DFI may apply for a superior court order authorizing a
     subpoena. DFI may recover the state's costs and expenses for prosecuting violations of the
     Washington State Earned Wage Access Services Act.

     Appropriation: None.

     Fiscal Note: Available.

     Creates Committee/Commission/Task Force that includes Legislative members: No.

     Effective Date: Ninety days after adjournment of session in which bill is passed.




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