The U.S. Consumer Financial Protection Bureau (CFPB) on Thursday proposed a rule to bring the fast-growing earned wage access (EWA) industry under U.S. lending laws, aiming to strengthen oversight of payments related to workers.

As part of the proposed interpretive rule, the federal agency would define some early wage payments that charge workers fees as "consumer loans." The CFPB said its research of industry data found that workers using such services do so an average of 27 times per year, with interest paid exceeding 100% on an annualized basis.

"The CFPB's actions will help workers understand the true nature of these products and prevent a race to the bottom in business practices," CFPB Director Rohit Chopra said in a statement on Thursday.

The federal agency's action comes as the earned wage access industry has expanded rapidly over the past decade. Numerous companies offer services that allow employees to access earned wages before their regular payday. Some employers offer the service to workers for free through third-party EWA providers, while others may charge workers fees. Some EWA providers offer online services directly to workers.

Under the proposed rule, some EWA payments would be subject to the Truth in Lending Act and other consumer lending protections. The move is part of the Biden administration's broader effort to combat consumer "junk fees."

EWA providers such as Payactiv, DailyPay, Earnin, and Clair have been expanding services for workers. Industry players use different business models, with some charging employers and others charging employees.

Many EWA providers have been working with state lawmakers across the country to pass more industry-friendly state laws that require licensing and other regulations but do not place companies under lending laws. States that have passed such laws in the past two years include Kansas, Missouri, Wisconsin, and Nevada.

In contrast, California and Connecticut have taken a different path, pushing to bring EWA payments under lending laws with interest rate regulation and transparency requirements.

The CFPB hinted earlier this year that it was more likely to follow California's approach in addressing the evolving EWA market. The agency has been studying the issue to better understand how employers and employees use these services. The CFPB said it concluded that EWA programs are typically designed more for employers than for employees.

The guidelines proposed in the CFPB's new interpretive rule "would ensure that lenders understand their legal obligations and disclose the costs and fees of these credit products to workers," the press release said.

"The proposed interpretive rule makes clear that many earned wage access products—whether offered through employer partnerships or marketed directly to borrowers—trigger obligations under the Truth in Lending Act," the press release said.

The federal agency said it analyzed service data from eight EWA providers for 2021 and 2022 to understand about half of the market. The study found that in workplaces where employers do not cover service costs, about 90% of workers in 2022 "paid at least one fee," even though some providers advertise their services as free.

The CFPB said in the press release that the average transaction amount for workers was $106, with an average fee of $3.18.

For workers using EWA services outside of an employer relationship, such direct-to-consumer services may charge monthly subscription fees (potentially $14.99), in addition to possibly offering "tips" or gratuities, the CFPB said.

Under the proposed rule, such tips and other EWA service fees would be counted as finance charges when the CFPB applies the Truth in Lending Act. For services that are "truly free," the requirements may not apply, the agency said.

The CFPB also seeks to impose finance charge disclosure requirements on EWA providers to ensure workers understand the costs of any service and can compare different products.

Acting U.S. Secretary of Labor Julie Su supported the CFPB's proposal, saying in a press release that the new rule would "guard against predatory lending in the workplace."

Those who have long supported stronger industry regulation, as well as those opposed to consumer lending oversight, weighed in on the CFPB's action on Thursday.

The National Consumer Law Center praised the CFPB's proposal, saying in a statement on Thursday that it is an appropriate measure "to address evasion by fintech payday lenders" who attempt to hide the true cost of their services.

"We are deeply concerned that this proposed CFPB action will harm the millions of workers who rely on earned wage access services to obtain wages they have already earned, without having to depend on outdated monthly or biweekly pay cycles to manage expenses," said Penny Lee, CEO of the Financial Technology Association, in a statement on Thursday.