Direct-to-Consumer EWA Still Poses "Debt Trap" Risk, New CRL Report Argues
Plaid-JPMC Deal Kills Hopes For Fee-Free Open Banking
Hey all, Jason here.
After a long two weeks on the road, I’m finally back home in the Netherlands (if a bit jet lagged.) I’m 3/7ths of the way through my fall conference circuit, with Finovate, MX’s Money Experience Summit, and LoanPro’s Salt Flats Summit behind me. I thoroughly enjoyed all three and have nothing but admiration for the countless hours of hard work that go into organizing these events.
Keep an eye out for upcoming podcasts recorded during these events, including an episode of Fintech Takes with Alex Johnson and Kiah Haslett, an installment of my own podcast with EDGE founder/CEO Brian Reshefsky and MX’s chief revenue officer Matt West, and the inaugural episode of LoanPro’s Fintech Tea podcast with CMO Colton Pond.
Also! I’m excited to join Ballard Spahr next week for a live webinar tackling the topic of “debanking,” including what the recent executive order and related state laws mean for financial institutions, government, and bank customers. Full details and register here.
Direct-to-Consumer Earned Wage Access Still Poses “Debt Trap” Risk, New CRL Report Argues
Earned wage access, often referred to simply as EWA, was suppose to solve the problems associated with traditional small-dollar, short-term borrowing products like payday loans and bank overdrafts; namely, their high costs and tendency to lead to repeat use, which consumer advocacy groups often describe as a “debt trap.”
Proponents of EWA often argue the products are not “credit” or a “loan,” but rather enable workers to access wages they have already earned that have not yet been paid out, owing to the typical two-week pay cycles most employers operate on.
But even within EWA world, there are fault lines: “employer-integrated” providers access employees’ time and attendance data to deterministically calculate earnings, net of taxes and any other payroll withholdings.
In this approach, the advance to a worker is repaid directly and automatically from their employer on their payday. The employee receives the balance of their paycheck, net of the advance and associated fees, if applicable, as normal. Because employer-integrated EWA providers are repaid directly via the payroll process, their risk of not being repaid is nearly zero.
On the other hand, “direct-to-consumer” EWA providers eschew using deterministic payroll data, which typically requires entering into contracts with employers and building integrations with their time and attendance systems. Instead, direct-to-consumer providers look to other data sources, including bank account transaction data and even GPS location tracking, to estimate workers’ earnings.
In the DTC model, the EWA provider typically collects repayment from a user’s linked bank account on their payday. Because repayment is coming from a user, rather than directly from their employer, risk of non-payment is materially higher, as is the chance of users incurring overdraft or non-sufficient funds fees from their bank, if providers attempt to debit their accounts but they lack sufficient funds.
Employer-integrated and DTC EWA providers have varying business models that include employers footing the bill for some or all of the cost (for employer-integrated providers), charging a monthly subscription fee, charging per-advance fees, charging expedited funding fees, and/or accepting so-called “tips.”
EWA products are, by definition, short duration. A 2021 report from the California Department of Financial Protection and Innovation found the advances typically carried a tenor of between 9 and 12 days, with an average length of 10 days.
The same report found that users paid a total cost of as much as 16% of the advance amount, for the smallest advances from providers that accepted tips, to as little as 1% of the advance amount, for the largest advances.
But, given the extremely short duration of these products, when calculated as an annualized percentage rate, costs easily reach triple-digit levels for all but the largest advance amounts, which are used far less frequently than smaller advance amounts.
There is a legitimate argument to be made that APRs aren’t a particularly meaningful metric to consumers for small-dollar short-term transactions, and that a dollar amount fee is the more salient data point.
However, the disparate fee structures of EWA products and the lack of Truth in Lending Act disclosures, including APRs, that typically accompany consumer credit products make it exceedingly difficult to compare costs of different options on an apples-to-apples basis.
72% of DTC EWA Users Take More Than One Advance In A Two-Week Period
The new Center for Responsible Lending report, exclusively shared with Fintech Business Weekly in advance of its publication today, uses a longitudinal approach to attempt to answer the question, how are a user’s financial health and behavior impacted after taking their first direct-to-consumer earned wage advance?
The report refers to these services as “payday loan apps,” arguing that DTC EWA functions largely the same as and shares essential characteristics with “storefront” payday loans.
“Classic” payday lenders, however, must be state licensed, operate within the bounds of state laws that define product specifications like maximum loan amounts and permissible fees, and are explicitly under the supervisory jurisdiction of the federal Consumer Financial Protection Bureau (not that that means much at this point.) State and federal requirements for EWA providers, both employer-integrated and DTC, remain an evolving patchwork.
CRL’s report uses anonymized bank account transaction data from 5,000 users of SaverLife, a savings and financial education platform, who also used at least one of five direct-to-consumer EWA apps between January 2021 and May 2025. Comprehensive data from employer-integrated providers wouldn’t appear in this data set, as repayment occurs directly from users’ employers.
The report identified the date of a user’s first DTC EWA use and tracked and analyzed the following 12 months of bank account activity, including subsequent EWA usage and overdraft activity.
CRL finds that, once a user takes their first EWA advance, usage quickly escalates, doubling from an average of about two advances per month to four per month.
According to the report, frequent borrowing is the norm, not the exception. It found that 72% of users took out more than one advance in a two-week period. The report also found that it is common for users to take advances from more than one service, with 53% of users in its sample doing so.
The tendency to use more than one service, referred to by some as “stacking,” increased over time, with 16% of users doing so during the month of their first advance vs. 42% of users juggling multiple providers after one year.
The report notes that, because it only includes five direct-to-consumer apps, the stacking behavior and fees incurred it captures represents the lower bound and does not include employer-integrated EWA or other short-term liquidity products, like classic payday loans or buy now, pay later services.
The CRL report found that, after taking their first advance, users were more likely to overdraft their bank account; the share of DTC EWA users experiencing at least one overdraft increased from 9.7% in the three months before taking an advance to 14.1% in the three months after a user’s first advance.
EWA app users, particularly the heaviest ones, incurred substantial app and overdraft fees, the report found.
CRL found that “light” users of DTC EWA apps incurred an average of $66 in app and overdraft fees in their first year, “moderate” users incurred an average of $154, and “heavy” users incurred an average of a whopping $421.
The report concludes by arguing:
The predatory design of payday loan apps drives financial harm for many workers. Through misleading marketing and fee structures that encourage frequent use, these companies push workers to take out expensive loans and to do so repeatedly. These business models are structured to maximize the number of transactions and the fees extracted, depleting workers’ paychecks, increasing the risk of overdraft, and compromising workers’ financial well-being.
To truly protect workers’ financial health, strong consumer protections and comprehensive regulation of payday loan apps are urgently needed. Meaningful reforms are needed to prevent workers from being trapped in cycles of debt and having their wages drained by predatory products.
Short-term, small-dollar products, regardless of the exact product structure or whether or not they meet the legal definition of a “loan” or “credit” are, all too often, welfare destroying rather than welfare enhancing.
The sad reality for many workers using these products is that they’re just trying to survive, to figure out how to make it through the next week or two until it’s payday.
Consumer use of short-term, small-dollar products like DTC EWA is rarely for the types of one-off emergency expenses companies suggest they’re used for, and rather tend to be part of how households manage their day to day, paycheck to paycheck cashflow.
When you’re operating on such a short time horizon, paying $5 or $10 to borrow $100 in order to put gas in the car or food on the table may feel like a small price to pay. But the reality is that $5 here and $10 there do add up, particularly for the heaviest users and most financially fragile households.
There certainly is an argument to be made that such products should exist and that it is up to consumers to choose whether or not to use them.
But, the main “innovation” of the kinds of direct-to-consumer earned wage access services CRL analyzes in its report is simple regulatory arbitrage — including by operating in states where classic payday loans are illegal by pretending their subscription fees, tips, or expedited fundings fees aren’t finance charges and don’t need to be calculated as an APR.
By obfuscating their fee structure and, in some cases, leveraging “dark pattern” user experience elements, these apps make it difficult if not impossible for consumers to compare costs, features, and benefits on an apples-to-apples basis, preventing them from making a well-informed decision about whether or not to use such services.
Nine Interesting Takeaways From 2025 Financial Health Pulse Report
On a related note, the Financial Health Network released the 2025 installment of its Financial Health Pulse report.
The report, based on survey data, comes at a time of increasing uncertainty in the U.S. economy: the effective U.S. tariff rate has jumped from 2.4% at the end of 2024 to 15.8%; inflation has reaccelerated, coming in at 2.9% year over year in August; employment growth has slowed to a trickle and the unemployment rate has ticked up to 4.3%; credit scores are dropping at the fastest rate since the housing crisis, with those struggling to make recently resumed student loan payments seeing the largest declines; and the yet-to-be-felt impacts of Trump’s “One Big Beautiful Bill,” forecast to include reductions in food aid to 2.4 million people and $1.1 trillion in cuts to Medicaid and ACA (“Obamacare”) subsidies, which are expected to lead to 15 million Americans losing health insurance coverage.
The Financial Health Pulse report categorizes households as “financially healthy,” “financially coping,” or “financially vulnerable” by assessing eight indicators: spending relative to income; on-time bill payment; liquid savings levels; confidence in long-term savings goals; debt manageability; credit score; confidence in insurance coverage; and planning ahead financially.
Against this backdrop, one could argue that a statistically significant improvement in households that are economically “vulnerable” is a win. Though, it’s worth noting, the survey data on which the report is based was collected between April 11, 2025 and May 19, 2025 — which paints a somewhat ominous picture for what next year’s report may reveal.
Breaking down financial health status by income tier, it’s downright remarkable that fewer low-income households are deemed “vulnerable,” with a growing share classified as “coping” or “healthy.” Moderate-, middle-, and upper-income households did not see any statistically significant changes vs. 2024.
Unsurprisingly, households that are “unbanked” or “underbanked,” using the FDIC’s definitions of those terms, are far more likely to be financially vulnerable vs. fully banked households.
While financially fragility is often thought of or portrayed as an “inner city” or urban issue, the report belies that stereotype, as rural households are actually materially more likely to show signs of being financially “vulnerable.”
According to the Financial Health Network survey and report, LGBTQ+ households are significantly less likely to be financially “healthy” than non-LBTQ+ households, with 21% falling into the financially “vulnerable” category.
Workers whose only or primary employment is in a non-traditional job (eg gig work) are significantly less likely to be considered financially “healthy” vs. those in traditional employment, though those who have a non-traditional job as secondary employment are less likely to be considered financially “vulnerable.”
Unsurprisingly, those self-identifying as being in poor or fair health are significantly more likely, at 35%, to be considered financially “vulnerable.” The links between health and household finances run in both directions, with those who are less healthy often having more tenuous employment and incurring greater expenses.
In an era of accelerating climate change, natural disasters are becoming both increasingly more common and increasingly expensive.
Many American homeowners are underinsured, including an estimated 1 in 8 that lack homeowners insurance altogether. So it shouldn’t come as a surprise that households that faced a natural disaster or severe weather event in the last 12 months were somewhat more likely to be considered financially “vulnerable.”
Finally, households’ confidence in the adequacy of their insurance policies to provide adequate support in an emergency continued to decline, with just 56% of households saying they were at least moderately confident their coverage would be sufficient.
The report clarifies that it isn’t able to establish which categories of insurance coverage are driving the trend, but notes there is a correlation between those experiencing a natural disaster or severe weather event and those saying they were not at all confident in their insurance coverage.
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