An option when the paycheck is late

It’s been a tough few months for the New Yorkers. The Omicron wave devastated the state, supply chain problems contributed to empty grocery shelves, and many residents are increasingly struggling to stay ahead of their bills. Inflation is at a 40-year high and gas prices are skyrocketing.

As these problems reinforce each other, families find it harder to make ends meet. That’s why providing access to cash and advocating for financial empowerment is more important than ever. As the cost of everyday necessities continues to rise, thousands of Americans are wondering how they can keep paying their bills on time.

What should hardworking people do when they need a few extra bucks to fill up their tank and have earned the money but are trapped by not getting paid for weeks? Every year, while Americans wait for their paychecks, more than $1 trillion of their hard-earned money is withheld. As a result, consumers who need cash most are piling up over $50 billion in arrears and overdraft fees, and many are turning to high-interest loans — which can become an endless cycle.

One way is to look for new and innovative financial technologies that can help improve the quality of life for consumers. A relatively new concept, Earned Wage Access (EWA), allows working families to get paid on their own schedule and helps manage their cash flow without the negative impact of high-interest loans and high fees. There are quite a few companies that offer people access to their salary as they deserve without the interest and late fees that many financial services firms charge. EWA companies have no legal recourse against consumers – so if life happens and a consumer fails to reimburse the company, there are no late fees and their creditworthiness will not be affected for years to come.

A research study conducted with FTI Consulting in May 2021 showed that EWA helps working families stuck in a traditional pay cycle manage their finances. The study found that without EWA, 44 percent of users would otherwise consider not paying certain bills, and more than a third of consumers would intentionally overstay or take out a payday loan due to liquidity constraints. Additionally, 92 percent of consumers given EWA said it has helped them pay bills on time, avoid overdraft fees and become less dependent on credit cards, allowing them to more easily achieve financial freedom.

Because EWA is currently unregulated in New York, there are no guarantees that responsible EWA providers will be allowed to continue providing financial assistance to vulnerable residents who need access to their salary to make ends meet. It is our duty to ensure that these tools are available to New York consumers, but it is also our responsibility to ensure that these providers follow clear rules and that consumers do not have to sacrifice their privacy or face other forms of exploitation, to gain access to their hard-earned money. Other financial products with high APRs, hidden contractual obligations, or that make money off the consumer instead of helping the consumer should not find a backdoor through EWA.

The legislation I am introducing will draw a line between predatory practices and trusted EWA services that provide value to consumers who have been excluded by the traditional pay cycle. It has been shown time and time again that financially weak users are better off when they have access to the money they have already made through EWA. We should support new technology laws that strengthen consumer protection laws and ensure bad actors are kept out while we help Americans achieve financial independence.

State Senator Jeremy Cooney, D-Rochester, representing the 56th Senate District.

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