“Earned wage access” is marketed as a means of making it easier for workers to get their paychecks before payday. In reality, these so-called EWA advances are exorbitant loans that harm workers by putting them in a worse financial position than before they borrowed money in the first place. With “fees” and “tips” that the lenders require or solicit, EWA advances are loans with interest rates that regularly exceed 100%, and often exceed 300%, far above interest rates allowed by Maryland law. Because of their high cost, EWA advances trap borrowers in repayment cycles that erode their hard-earned wages.

That is why my office opposed a bill in the General Assembly that would have legalized these predatory loans and exempted EWA advances from Maryland’s interest rate caps. Together with 13 other states, my office also recently supported a proposed rule from the Consumer Financial Protection Bureau (CFPB) confirming that EWA services are loans and requiring lenders to inform consumers whether their “fees” and “tips” exceed the allowable annual percentage rate (APR) charged to borrowers.

Maryland must maintain its steadfast commitment to preventing payday lenders from gouging consumers. EWA providers’ claims that their advances are somehow not “loans” is contrary to the evidence. It is money advanced to an employee who is then required to repay on payday. EWAs, whether or not they are employer-based, are advances of money offered by a third party, not an early payment of wages by the employer. They are loans, repaid later by the employee either directly or through a payroll deduction or another method of payment, for which the employee must pay fees.

EWA providers claim that they offer an important service. But Maryland workers, many of whom live paycheck-to-paycheck, cannot afford exorbitant interest on these loans which diminish their hard-earned wages. Although my office understands the inconvenience caused by employers who don’t pay workers frequently enough, or bills that come due between paychecks, the answer is not payday and other predatory loans that charge more than permitted by law. According to a 2023 U.S. Government Accountability Office report on financial product technology, the vast majority of consumers using EWA loans earned less than $50,000 a year, with many earning less than $25,000 a year. Those who took out EWA loans did so, on average, three times per month.

Although the fees charged by EWA providers appear to be small compared with the total loan amount, those fees, which include “subscription” costs and charges for “expediting” delivery of the advance, add up to excessive APRs. The CFPB found employer-sponsored advances carried an average interest rate of 110%, while a separate study found that paycheck advances from non-employer-sponsored lenders cost workers an average interest rate of 367%.

Companies providing EWA advances often tout their product as a way for consumers to avoid penalties from overdrawing their checking accounts. However, a Center for Responsible Lending study found that, for consumers who took out these advances, checking account overdrafts increased by 56%. Clearly, these loans do not save consumers from overdraft fees; instead, they often cause consumers to be subjected to more overdraft fees as they are caught in a cycle of debt.

EWA lenders misleadingly call some of their charges “tips” or “donations.” While consumers are told that “tips” are not required to get a loan, in practice consumers feel obligated to “tip.” Moreover, the CFPB has reported that EWA lenders have used deceptive and manipulative practices to induce consumers to pay “tips,” such as disabling services for those who refuse and falsely implying that so-called tips or donations are used to help other consumers.

For EWA loans, even a modest “tip” can drastically increase the cost of a transaction and make it more likely lenders will unfairly profit from consumers’ confusion. When a lender charges for a loan, the charge should be clear, in the form of an annualized interest rate, and based on factors related to the lending transaction, not smoke, mirrors and susceptibility.

EWA lenders have not made the case for exemption from the interest-rate caps that all Maryland lenders must follow. The pitch that EWA advances are a new and innovative way to help workers living paycheck-to-paycheck should not fool the General Assembly the same way that EWA lenders seek to fool and prey on unsuspecting consumers. I commend the General Assembly for enacting strong protections against predatory loans, and I urge legislators to stand with hardworking Marylanders and resist efforts to exempt usurious EWA advances from our state’s interest rate caps.

Anthony G. Brown (oag@oag.state.md.us) is Maryland’s attorney general.