Fintech, Payday Loans and the Changing Landscape of Cash-Advance Consumer Credit in the United States

Abstract

High-cost, cash-advance or “payday” loans have plagued low-in- come consumers in the United States for several decades. With little regulation at the federal level, states have created a wide variety of regulatory frameworks addressing payday loans — from banning payday loans altogether in some states to permitting them with few restrictions on fees and practices in others. In recent years, however, an alternative to payday loans has emerged as fin- tech lenders partner with employers to offer “earned wage access” or EWA plans to low wage workers which allows them to obtain part of their earned wages before their actual payday. At present, EWA plans are usually offered free or for a small fee. This paper discusses the evolution of payday loan regulation in the United States and the emergence of the EWA alternative. It maintains that while EWAs are currently a less expensive way for consumers to obtain cash-advances before their next payday, there are enough similarities to traditional payday loans that consumer credit regulators should take a close look at and create frameworks for cur- tailing potential abuses in this emerging market.

Keywords: Fintech, Consumer Credit, Payday Loans, Consumer Financial Protection Bureau