Firm banned in CT giving $50K to former customers
As the 2024 Connecticut legislative session ends, the award for most creative effort to win favor with lawmakers goes to ... EarnIn, a California finance company. It’s not even close.
EarnIn had 20,000 customers in Connecticut until the state Department of Banking banned its entire industry as of the start of this year. These firms provide advance payments known as earned-wage access, or EWA, to workers who have earned money on the job but are short of cash before payday — for a small fee, typically $3 or $4.
EarnIn and other earned-wage access companies tried but failed to persuade members of the legislature’s banking committee to craft a bill allowing them to operate in Connecticut, as they do in all 49 other states.
Not wanting to exit without a nice gesture, in the waning days of the session EarnIn announced a $50,000 fund for its former customers and anyone else who previously used the industry’s services. The former — and perhaps future — customers can collect up to $105 from the fund, by showing proof they were EWA customers and paid bank overdrafts or late fees on bills since Jan. 1, 2024, as a result of running out of cash before they were paid.
“This partnership is just one way we’re maintaining our commitment to helping people achieve financial independence while we continue to advocate for responsible regulations through the state legislature,” the EarnIn CEO, Ram Palaniappan, said in a written release with the announcement of the fund.
Goodwill for the 70,000 Connecticut earned-wage access customers, definitely. Was the fund also designed to curry favor with legislators amid last-minute talks to save a bill that might allow the company to return?
A company official at the Capitol said there was “no direct relationship.” But it was hard for some lawmakers on the banking committee to see it otherwise.
“They obviously want to do business in Connecticut,” said the banking committee co-chair, Rep. Jason Doucette, D-Manchester. Although he had not thought of the fund as a way to curry favor, he said, “it seems like a fine idea.”
“It’s a good faith effort to make families whole,” said Sen. Patricia Billie Miller, D-Stamford, the co-chair.
“It’s a brainstorm,” Rep. Tom Delnicki, R-South Windsior, ranking House GOP member on the committee. “It’s A, public relations and B, a user service.”
The core of the dispute over whether earned-wage access companies can operate in Connecticut is the question of whether the cash payments amount to loans. That’s exactly what the Department of Banking calls them, and therefore even a small fee of, say, $4 for a customer to gain access to $100 for a week, would equate to more than 200 percent when annualized.
And that interest rate makes the fee an illegal loan under a bill that tightened the rules last year at the department’s request. The department issued its rules banning the industry last summer, shocking industry executives and surprising lawmakers, even on the banking committee, who did not know they had voted for such an action.
Banking department officials said it was, or should have been, clear. Consumer advocates equated the earned-wage access model to the old payday loans during a hearing in March, although payday loans typically gouged consumers deeply, as true loans with rolling interest.
Some on the committee, including Delnicki, say it’s a fee similar to an ATM charge, not a loan. Miller, the co-chair, isn’t concerned with how the word is defined, only with whether families have access to money at a fair price. “You can’t go into a bank these days and get a personal loan,” Miller told me. “There has to be an option for these families in case there’s an emergency in their lives.”
Doucette sides with the department in calling the charges loans. He tried but apparently, with one day remaining in the session, failed to work out a compromise that would allow companies working directly with employers to make pre-payday cash available for limited fees.
One committee member who has thought about the problem, Rep. Jaime Foster, D-Ellington, told me she believes there’s room to work out the problem, most likely in 2025. The key: call it whatever you want but craft a separate, reasonable, annual-percent-rate calculation that works for earned-wage access instead of annualizing the small fee.
As for the fund, available at www.itsyourmoneyct.com, Foster said, “I think it’s generous; give people money, great. I don’t think that’s effective at changing policies.”
The fund was created through the Hispanic Coalition of Greater Waterbury and it earned praise from a prominent member of that community, Rep. Geraldo Reyes Jr., D-Waterbury. “Families who have been affected by Connecticut’s new rules on earned-wage access will have a short term solution while the state legislature works hard to find a legislative fix,” Reyes said in the announcement of the fund.
As with so many failed bills, the hard work will have to happen again next year. There ought to be a solution to this if folks can show some flexibility. For now, a tip of the hat to EarnIn for letting its customers know it’s still here in Connecticut.