[US] Lawsuit filed to halt EWA provider practices in New York

by Michael Baer 

The New York Attorney General filed a lawsuit in a state court on April 14, accusing a nationwide Earned Wage Access (EWA) provider, DailyPay, LLC,  of being a payday loan operation that pretends “to simply be advancing ‘earned’ wages.”

This follows DailyPay’s April 7 lawsuit filed in federal court against the New York Attorney General’s Office (OAG), accusing the office of unlawfully restricting and rendering uncertain the ability to conduct business in New York. In its suit, DailyPay claims the New York lending laws cited don’t apply to DailyPay’s business model and that “the OAG has elected to designate itself as both legislator and regulator in the absence of applicable laws and regulations.”  

The OAG’s suit consistently terms DailyPay’s business model as a loan and accuses the company of predatory loan-making practices. The New York Attorney General seeks to enjoin the company “from offering Paycheck Advances that incur fees above the rates prescribed by New York law,” requiring an accounting of all customers who paid costs at interest rates that exceeded the state's statutory limit, and providing restitution and damages.  

The OAG particularly accuses DailyPay of falsely claiming that their program should be considered a benefit for employers and employees. 

Claims and Counterclaims 

DailyPay, in its suit, denies the claim that it provides loans and that the small flat fees it requires for near-instant payments of wages are not interest-bearing, that the employees receiving the payments are not subject to credit reporting, and that there is no recourse for DailyPay should there be a mistaken payment. The fees charged are done at the option of employees who choose to participate, and depend on their desire to access pay in near-real time, as opposed to choosing free options offered by the program that provide amounts generally the next business day.  

As for referring to the program as a benefit, DailyPay cites several company-sponsored surveys by outside groups of the program by participants who, by large majorities, reported benefitting from access to pay ahead of payday without reverting to a payday loan, suffering from a bank overdraft fee, or even adding to credit card debt.   

The OAG suit cites research that indicates a growing cycle of dependency on the convenience of accessing pay on demand. The office alleges that this is “harmful behavior, telling employees they ‘deserve to be paid every day’” instead of having them wait for sometimes weeks to be paid on a schedule.  

In addition, the office claims that while DailyPay promises non-recourse for addressing payment mistakes, in rare instances where payments are made by employers to employees outside of the program, employees can be obligated to notify DailyPay and hold amounts in trust for the company’s benefit. 

Program Abusers 

But it is the abuse by users of the program that the Attorney General highlights in her news release on the lawsuit. Choosing to pay for access on a frequent basis can be costly. According to the release, one employee in New York City used the program an average of 4.5 times a week for almost two years, “paying nearly $1,400 in fees,” and one in Syracuse paid for use of the program nearly 500 times. These examples were not included in the case filing.   

The Attorney General also filed suit on April 14 to similarly enjoin MoneyLion from continuing what it accuses as practicing illegal predatory lending. Their program involves individuals providing “tips” to the company, as it provides amounts prior to payday.  

New York does not have a law expressly addressing earned wage access. Members of the New York legislature have introduced bills to formally legalize the practice.  

Several other states have laws allowing DailyPay and other similar programs to operate without being considered mechanisms for payday loans. In the case of California, EWA can be considered credit, but can operate legally with different regulatory requirements than most consumer loans.   

by Michael Baer 

The New York Attorney General filed a lawsuit in a state court on April 14, accusing a nationwide Earned Wage Access (EWA) provider, DailyPay, LLC,  of being a payday loan operation that pretends “to simply be advancing ‘earned’ wages.”

This follows DailyPay’s April 7 lawsuit filed in federal court against the New York Attorney General’s Office (OAG), accusing the office of unlawfully restricting and rendering uncertain the ability to conduct business in New York. In its suit, DailyPay claims the New York lending laws cited don’t apply to DailyPay’s business model and that “the OAG has elected to designate itself as both legislator and regulator in the absence of applicable laws and regulations.”  

The OAG’s suit consistently terms DailyPay’s business model as a loan and accuses the company of predatory loan-making practices. The New York Attorney General seeks to enjoin the company “from offering Paycheck Advances that incur fees above the rates prescribed by New York law,” requiring an accounting of all customers who paid costs at interest rates that exceeded the state's statutory limit, and providing restitution and damages.  

The OAG particularly accuses DailyPay of falsely claiming that their program should be considered a benefit for employers and employees. 

Claims and Counterclaims 

DailyPay, in its suit, denies the claim that it provides loans and that the small flat fees it requires for near-instant payments of wages are not interest-bearing, that the employees receiving the payments are not subject to credit reporting, and that there is no recourse for DailyPay should there be a mistaken payment. The fees charged are done at the option of employees who choose to participate, and depend on their desire to access pay in near-real time, as opposed to choosing free options offered by the program that provide amounts generally the next business day.  

As for referring to the program as a benefit, DailyPay cites several company-sponsored surveys by outside groups of the program by participants who, by large majorities, reported benefitting from access to pay ahead of payday without reverting to a payday loan, suffering from a bank overdraft fee, or even adding to credit card debt.   

The OAG suit cites research that indicates a growing cycle of dependency on the convenience of accessing pay on demand. The office alleges that this is “harmful behavior, telling employees they ‘deserve to be paid every day’” instead of having them wait for sometimes weeks to be paid on a schedule.  

In addition, the office claims that while DailyPay promises non-recourse for addressing payment mistakes, in rare instances where payments are made by employers to employees outside of the program, employees can be obligated to notify DailyPay and hold amounts in trust for the company’s benefit. 

Program Abusers 

But it is the abuse by users of the program that the Attorney General highlights in her news release on the lawsuit. Choosing to pay for access on a frequent basis can be costly. According to the release, one employee in New York City used the program an average of 4.5 times a week for almost two years, “paying nearly $1,400 in fees,” and one in Syracuse paid for use of the program nearly 500 times. These examples were not included in the case filing.   

The Attorney General also filed suit on April 14 to similarly enjoin MoneyLion from continuing what it accuses as practicing illegal predatory lending. Their program involves individuals providing “tips” to the company, as it provides amounts prior to payday.  

New York does not have a law expressly addressing earned wage access. Members of the New York legislature have introduced bills to formally legalize the practice.  

Several other states have laws allowing DailyPay and other similar programs to operate without being considered mechanisms for payday loans. In the case of California, EWA can be considered credit, but can operate legally with different regulatory requirements than most consumer loans.