CT: AFC Letter to Governor of CT Expresseing Concerts for SB 1396/ Public Act No. 25-155

The Honorable Edward Lamont
Governor of Connecticut
Connecticut State Capitol
210 Capitol Avenue
Hartford, CT 06106

RE: Concerns with SB 1396/ Public Act No. 25-155

Dear Governor Lamont:

We are writing to express our concerns with Senate Bill 1396, now Public Act No. 25-155 (PA 25-155), which is headed to your desk for signature. AFC is the premier trade association representing the leading financial technology companies, including providers of Earned Wage Access (EWA) services.

AFC is a standards-based organization, and our mission is to promote a transparent, inclusive, and customer-centric financial system. AFC represents the largest number of EWA providers, in addition to other companies offering innovative products and services. A core part of our mission is supporting responsible innovation and sound public policy in Financial Services.

We appreciate the Connecticut legislature for undertaking the difficult but necessary task of regulating Earned Wage Access services. Responsible industry providers, the Connecticut Department of Banking (DOB), and the Connecticut legislature all share a common goal of increasing access to financial services while ensuring robust consumer protection. However, as passed out of the legislature, we believe that PA 25-155 may have missed the mark in ways that limit responsible EWA services and could harm the very consumers we are all trying to protect. Therefore, we ask that your administration continue to collaborate with AFC and EWA providers to improve this law in the next legislative session.

EWA is a Fintech product that allows users to access the wages they have already earned in a pay period, before their scheduled payday. There are several characteristics that differentiate EWA from traditional credit and loan products, including:

● A reasonable no-cost option is available for all users;

● All fees are voluntary and are usually charged for enhanced services like instant transfers of proceeds;

● Users are never charged interest or late fees on any EWA transactions;

● EWA transactions are credit invisible, no credit checks are required for a user to receive their earned wages;

● EWA transactions are non-recourse and users can cancel at any time; meaning they do not have to be repaid, and failure to repay will not be reported to credit agencies or be referred to collections.

The chief concern among AFC members is that PA 25-155 creates anti-competitive access limits and requirements. For example, the requirement that EWA providers must offer “an amount equal to not less than seventy-five percent of the amount of the Connecticut borrower’s earned but unpaid wage or salary income for the pay period” only allows some of the largest providers to operate.  For both consumers’ protection, and to limit over leveraging themselves, AFC members typically set lower limits on what users can access in a pay period. Because EWA is non-recourse, only providers that can tolerate the liability risk of offering potentially large sums would be willing to operate.

The law also places exceptionally strict limits on the fees providers can charge, not to exceed $4 per transaction not exceeding $30 per month per user.  These proposed caps on EWA fees are stricter than any others enacted within the United States, and likely below the fully-burdened cost of operation for many providers.   The caps do not contemplate or account for the greater risks imposed by the 75% rule.  Further, they do not appear to be based on any detailed economic analysis or study, or even the cost of the alternatives available to EWA users. They also do not appear to be based on any existing state or federal statutes. Conversely, similarly situated states, such as Indiana and Maryland ensured that their fee caps were aligned with existing state and federal statutes. Moreover, all fees a user pays for EWA transactions are voluntary. These fees are typically charged when a user requests expedited service to receive their EWA proceeds instantly. Specifically,      instant money transfers can be costly for the providers initiating them, and the proposed cap is far less than the cost of wire transfers and does not afford providers the flexibility to adjust these fees if their costs rise due to inflation.

PA 25-155 is also the only bill in the U.S. that proposes an aggregate cap on EWA transaction fees. An aggregate cap potentially limits users’ ability to access EWA in times of greatest need and, ironically, is lower than many late fees and overdraft charges that users are likely to incur without adequate access to EWA. With these fee caps in place, providers may need to reduce their standard service levels or may remain opted out of serving Connecticut users all together.

In addition to these specific challenges posed to EWA providers by this bill, there are other onerous restrictions and complex requirements that do little to help or protect consumers.

We kindly ask that you consider the challenges posed by PA 25-155 as you consider whether to sign it. We also hope to continue the conversation about how to amend the bill in future sessions to create a regulatory framework that helps Connecticut consumers in their times of need, allows all responsible EWA providers to operate in      Connecticut, gives      your constituents a choice about the EWA provider that best fits their needs and fostering healthy competition among providers.

Sincerely,

Phil Goldfeder
Chief Executive Officer
American Fintech Council

Stacy Greiner
Chief Executive Officer
DailyPay

Ram Palaniappan
Founder and Chief Executive Officer,
EarnIn

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