Payday loans are the most obvious risk to your paycheck. Now, a benefit offered to many employers called Earned Wage Access (EWA) is raising questions about whether it is also a “risk”.
Sometimes referred to as demand or early pay, EWA is considered a benefit to give employees quick access to money they have earned.
However, consumer advocates and some regulators say the structure and potential fees eat into your paycheck.
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Access to Earned Wages is a feature that allows employers to let their workers tap into their paycheck before it’s scheduled to be posted to your account. You can usually sign up through your HR department and apply through an app or online account that your employer provides.
The point is that you can access your funds within days or even instantly for a fee instead of waiting two weeks. That way, you can use the money for whatever you need, whether it’s paying bills or trying to get groceries.
The benefits of EWA have grown, with many major companies offering this feature. Yes, you can find third-party ones that are targeted directly to consumers, but employers will deduct directly from your paycheck.
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EWA markets itself as not charging any traditional interest, but there may still be a fee you need to pay. Some payments give you the option to pay a small fee or “tip” to the provider or a quick transfer fee to receive funds immediately.
Although the amount may seem minimal, it can add up. According to a report by the Innovative Payments Association, workers who use EWA may pay an average of about $2.59 to $6.27 each time they use it. It doesn’t seem like much, but if you use it regularly, you could be paying hundreds of dollars every year.
If your employer doesn’t offer EWA, you can go to a third-party provider that can post more risk. A report from the Center for Responsible Lending found that EWA providers that offer direct access to consumers have incurred higher bank fees.
In other words, if someone doesn’t have enough in their bank account from their next paycheck to pay back the money they have access to, they can pay more than their “tip.” Their bank may charge an overdraft or insufficient funds fee if the EWA app attempts to withdraw the amount owed.
