As Americans start preparing to go back to work, it has become clear that on-demand pay technology has become a critical part of the economy.
Even before the Covid-19 pandemic, there were obvious signs that the traditional pay cycle was making it difficult for hard-working Americans to meet their essential needs. Employers are recognizing this, and the financial benefits for workers and employers is becoming undeniable. It’s emerged as a substantial cost-savings measure that employees embrace.
In a world of high-technology and instant payments, forcing workers to stretch their modest pay for weeks at a time is being cast aside as the relic of a bygone era. Technology now enables employers to cheaply, easily, and responsibly offer their employees the ability to get paid daily. Looking back, the idea that workers must essentially give their employer a loan because the employer can only pay them once or twice a month appears unfair at best, and more likely detrimental to American workers’ livelihoods.
At the same time, this new and fast-evolving industry must carefully preserve the public trust. On-demand pay can be extremely beneficial, but the underlying technology also can be abused, and we must ensure nobody is taking unfair advantage of workers with their program.
Currently, there is legislative activity on this issue in New York, showing an example of a practical approach to regulating on-demand pay. Any comprehensive regulatory approach that gives workers the fundamental right of liquidity, the right to be paid daily for services they render, should follow these principles.
Principle #1: Functional and Agile Regulation
At its core, a smart regulatory oversight approach must first recognize there are distinct and fast-evolving business models in the field of enterprise on-demand pay.
Registration and transparent, regular reporting to state financial agencies gives regulators and legislators the ability to isolate and identify deceptive and unfair business practices. At the same time, overly prescriptive rules should be avoided, as they will limit innovation, and are arbitrary and cumbersome.
Principle #2: Look to Existing Precedent to Protect Consumers
Debiting consumer accounts is dangerous. The business-to-business world is significantly different from the direct-to-consumer one. The trust built up in integrated systems like payroll and timekeeping provides consumers protection and reliability. Employer systems are all different, so flexibility in implementation that preserves the trust in the enterprise environment is critical.
We should look to existing law and policy to guide our approach on all models, so models that are not built on that trust, within the enterprise ecosystem, offer particular challenges. Existing law typically treats anyone offering money directly to consumers and asking for it back later are distinct from an enterprise payroll process.
Simply put, the payment of earned income is NOT the same as a loan in the amount of earned income, and history and the law both recognize this.
Principle #3: Harness the Market to Destroy Payday Loans, Overdraft Fees
Some states have successfully minimized or limited the harm of payday loans, and rightfully so. At the same time, an even more dangerous killer for low-income Americans, the overdraft fee, has devastated many who are financially vulnerable. And, title loans, pawn shops, late fees, and other costly solutions still exist, too.
Enterprise on-demand-pay users recently reported substantial reduction in reliance on these expensive alternatives across the board once they have access to a daily pay benefit. It is clear that when employees can be paid daily, their use of overdraft, late fees, and payday loans is substantially reduced.
On average, users can save about $1,200 a year each in the process. We have a once-in-a-generation opportunity here to put a dagger in the heart of payday loans and overdraft fees. To do that, cheap and responsible on-demand pay must flourish.
A New York Example
Recent legislative activity in New York is a fantastic example of a practical approach to regulating on-demand pay. State Senator Brian Benjamin’s proposed legislation (S. 8206), and Assemblyman Andrew Hevesi’s companion bill in the Assembly, empowers workers and gives them the right to be paid daily, and protects them from shadow predatory lending.
The New York approach reflects each of the principles noted above, and is the first comprehensive paradigm by which other states can begin to shape their own regulation on this topic. Senator Benjamin’s experience and accomplishments, both in the private sector and publicly, speak volumes about his thoughtful approach. And that Hevesi, chairman of the Social Services Committee, is sponsoring it in the Assembly shows it is timely as we move through these uncertain times.
As we return to work and start to do things differently, it is time for us to collectively seize this moment, and build a better world for our front-line workers and all workers, to give them the right to be paid daily.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Matthew Kopko is the vice president of public policy for DailyPay. He previously served in a similar role at Bird, the micromobility company, and prior to that was a senior government official and an attorney in private practice.