About Earned Wage Access
When unexpected expenses hit, waiting for a payday can feel like a struggle. That’s why some employers now offer earned wage access (EWA), giving employees early access to a portion of their earnings. While this can be a lifesaver in the short term, it may impact your long-term budgeting and financial goals. Here’s what you need to know to make the most of EWA without sacrificing financial stability down the road.
What is Earned Wage Access?
Earned wage access (EWA) gives consumers an early look at their earnings, providing access to money they’ve already worked for, even before payday arrives. EWA comes in two forms: employer-sponsored programs, where EWA is offered as a benefit, and independent third-party services. In both cases, you can access only the amount you’ve earned but haven’t yet been paid. For employer-sponsored EWAs, your paycheck will reflect the advance as a deduction. With third-party providers, repayment comes through a direct debit from your bank account.
What is the Cost of Using Earned Wage Access?
The cost of using earned wage access can vary. Some employers offer EWA as a free benefit, while third-party providers may charge fees for each transaction, sometimes with additional service charges or tips. It is important to note that these costs can add up quickly, sometimes being equivalent to an interest rate of up to 300% or more. In Maryland, some EWA fees may even be illegal. If you’re using EWA or have in the past, you can contact the Office of Financial Regulation (OFR) to have the terms reviewed.
The OFR monitors companies offering credit and advance products to Maryland residents. If you have questions or concerns about your EWA terms, please contact OFR’s Consumer Services Unit by email at CSU.Complaints@maryland.gov or by phone at 410-230-6077 for assistance.
The Advantages and Disadvantages of Using EWAs
- Quick Cash Access: Some EWAs allow you to receive funds instantly or within a few days, which can be helpful in emergencies.
- No Credit or Income Requirements: Since EWA doesn’t require a credit check, it won’t affect your credit score.
- Reduced Paycheck: For employer-sponsored EWAs, the advance amount is deducted from your next paycheck along with standard deductions, which may leave you with less for regular expenses.
- Cycle of Dependency: EWA is helpful in an emergency, but the constant cycle of taking money early leaves a gap in the next paycheck and creates a cycle of shortfall and debt that may become hard to break. The smaller biweekly paycheck will not be enough to cover other regular expenses, which could cause you to take out more loans or overdraw your bank account.
While EWAs can be a fast and easy way to get cash quickly, they come with potential pitfalls. Using EWAs can come with a sky-high interest rate of up to 300% as well as other fees. These high fees and reduced paychecks can make it difficult to meet basic needs, and over time, EWA reliance may interfere with long-term financial goals. Use this service cautiously, weigh the pros and cons, and consider if other options may be a better fit for your situation.
Aja’ Mallory is a staff attorney at the Maryland Volunteer Lawyers Service. Her practice focuses on housing and consumer issues for Marylanders of limited means.