Regulators in California, New York and several other US states have launched investigations into new FinTech apps empowering employees to access payment early.
The news comes after the sector in early-payment pas have seen a spike in the US, with these apps estimated to have handled payroll transactions worth $3.15bn in 2018, according to research from Aite Group, the research firm.
According to the Wall Street Journal, these enterprises have presented themselves as a cheaper and safer alternative to short-term loans and bank overdrafts.
Regulators in New York and in ten other states began to look into if these apps were compliant with payday-lending laws in August.
According to Linda Lacewell, who was appointed to the position as the new superintendent of the State Department of Financial Services in New York in June, the investigation aims to ensure people using the apps are not at risk of getting harmed.
When speaking with The Wall Street Journal, she added that some of the firms “appear to collect usurious or otherwise unlawful interest rates disguised as tips, monthly memberships” and other fees.
At roughly the same time, Californian lawmakers launched into a debate regarding new legislation aimed at protecting customers and what the legal foundation of the industry is. If passed, the law would be the first of its kind in the US.
“We welcome the regulators’ attention on this issue because I believe it will prevent the industry from regressing toward the same mean as payday lenders,” said Jon Schlossberg, chief executive of Even, which offers a financial-planning tool that includes instant access to earned pay through employers, told The Wall Street Journal.
Copyright © 2018 RegTech Analyst
