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Earned wage access provider DailyPay went on the offensive Monday with a lawsuit against the New York attorney general’s office, after a planned action by the state.
The company, which provides payments to workers ahead of their regularly scheduled paydays, denied that those payments are loans, despite assertions to the contrary by the New York attorney general’s office, according to the lawsuit. The state argued that DailyPay should be subject to lending laws, according to the lawsuit against AG Letitia James, filed Monday.
DailyPay contended that it has been transparent in how it presents its services and the fees associated with some of the payments it provides.
New York-based DailyPay, which provides services in other states as well, has asked the U.S. District Court for the Southern District of New York for a declaration that its services don’t constitute lending and that it hasn’t violated the Consumer Financial Protection Act or certain other New York state laws.
Providers of EWA services, also known as on-demand pay services, have proliferated in recent years to extend services by which workers, mainly hourly employees, can tap their earned pay earlier than they might otherwise be able to. Among DailyPay’s competitors are Payactiv, FlexWage Solutions and EarnIn, although the companies’ business models vary.
Some providers make money from fees imposed on the workers while others take a slice of interchange fees when funds placed on payment cards are used. While some providers work through employer partners, others do not.
EWA providers have lobbied for industry-friendly laws related to the services at the national and state levels, typically pleading for oversight that doesn’t deem their services loans because then lending laws would apply. The companies have been instrumental in leading certain states, including Utah, Arkansas and South Carolina, to pass laws that don’t regard their services as lending and mainly focus on having the companies register with the states’ financial departments.
The EWA providers have also engaged in heated discussions with federal and state regulators regarding how oversight of the services that have evolved over the past decade should be overseen. The Consumer Financial Protection Bureau last year issued an interpretive rule saying it deemed some of the services to be lending, but under President Donald Trump that rule is less likely to be pursued as his administration reduces oversight by that agency.
