The payroll advance industry is facing an investigation from New York and 10 other state banking regulators into potential violations of state usury and payday lending laws.

Payroll advance companies allow consumers to access money they’ve earned at their jobs in between paychecks and have seen a surge in use in recent years as an alternative to payday lending. The so-called “tips,” monthly memberships or additional fees that the companies charge for loan advances could result in interest rates that come in at rates far above state caps, the New York Department of Financial Services and the other state regulators...