Successful Challenges to Earned Wage Payday Loans

Earned wage payday loans, also known as payday loan apps, earned wage access products, earned wage advances, or fintech payday loans, are a fast-growing payday lending scheme. Typically claiming not to be loans and to charge no interest, these schemes are set up to evade federal and state consumer lending laws. 

This article explains why earned wage payday loans are in fact loans covered by federal and state lending laws except in states that have specifically exempted them.  Attempts to evade those laws may subject earned wage payday lenders to significant private consumer remedies under the Truth in Lending Act, the Military Lending Act, state credit laws, and state laws prohibiting unfair or deceptive acts and practices (UDAPs). Of special note are five federal court decisions issued just this year finding earned wage payday loans to be covered by credit laws. 

Moreover, as explained in the article, even if earned wage payday loans were not covered by credit laws, they still may result in numerous UDAP violations.  The article also describes earned wage payday loans, the marketing of these products, and the resulting significant consumer harm.

Types of Earned Wage Payday Loans

Earned wage payday loans allow consumers to use their smart phones or online accounts to obtain advances on their next paycheck sent to their bank account with little or no underwriting. The advances are based—some strictly, some loosely—on the amount of wages or income the consumer has accrued to date but is not yet due. The advances are small, typically under $100 and as small as $20 or less. 

There are two general categories of earned wage payday loans: those offered through an employer-integrated model and those offered directly to the consumer. 

Employer-based payday lenders operate through an agreement with the employer and are integrated with the employer’s time-and-attendance system, so that the lender can see the amount of wages earned to date. The lender typically estimates taxes and other deductions and may not know about wage garnishments. Advances are deducted right from the next payroll and never reach the consumer’s bank account. 

In one model, the earned wage lender requires the employee to divert their entire direct deposit to them; the lender then skims off the amount due, and passes on the remainder to the employee. In yet another model, the employer directly advances the funds (using a loan from the lender) and offsets the amounts due on the next payroll. Some employer-based payday loan apps are free if the costs are covered by the employer or the employee uses a debit card offered by the app provider. But most charge expedite fees. Companies that offer employer-based payday loan apps include PayActiv, DailyPay, Branch, Clair, FlexWage, Grit, Immediate, Instant, OnePay, Payfare, Rain, Rellevate, Tapcheck and ZayZoon. 

Direct-to-consumer (DTC) payday loan apps have no connection to the consumer’s employer. They may ask the consumer to authorize access to the consumer’s employee portal or use other methods to estimate the employee’s next payroll and payroll date, such as by looking at the direct deposit history and timing through bank statements or application programming interfaces (APIs) with the consumer’s account. 

The estimated amount of earned wages may be inaccurate, as when hours worked fluctuate. 

The lender advances funds to a designated bank account, typically requests a “voluntary” tip or donation, sometimes requires a subscription fee, and charges a fee if the consumer wants the advance expedited. The consumer is required to authorize the company to debit the consumer’s account on the day the paycheck is estimated to be deposited, which may not be the correct date, especially when the paycheck is delayed due to a weekend or holiday. If the initial repayment debit fails, after several attempts to debit the amount due from the consumer’s bank account, the lenders may claim not to further pursue the debt. In theory, consumers have the right to cancel the repayment, but that option is often hidden and difficult to exercise. Companies offering these direct-to-consumer loans include Dave, EarnIn, Albert, Brigit, Empower, FloatMe, MoneyLion, and Possible. 

Whether employer-based or direct-to-consumer, most earned wage payday lenders skirt consumer protection laws by claiming that they do not provide loans and are therefore not covered by existing laws and regulations. Chime, which offers a line of credit, is one of the few lenders to agree that it is offering credit.

How Earned Wage Payday Loans Drain Consumer Funds

Most earned wage payday lenders claim they do not charge interest and/or fees. But the lenders have a variety of ways to make consumers pay for the advances, including purportedly “voluntary” tips and donations, expedited payment fees, and sometimes required subscription fees or other charges. 

Most lenders, both employer-based and direct to consumer, push consumers to pay expedite fees if they want the funds instantly, as almost everyone does. If the consumer does not pay the expedite fee, in most case the advance will be slow (delayed up to five days) or inconvenient (i.e., accessible only on a separate app or prepaid card). Most workers end up paying expedite fees.

The direct-to-consumer apps also usually urge the consumer to pay a “tip” or “donation.”  A preset amount may be included that is cumbersome to remove. Messages and interfaces can make it hard to avoid these charges.

These tips and charges are significant in the context of the nominal amounts borrowed, and with a typically short loan term the annual percentage rate (APR) can easily exceed 200%. For example, according to one state attorney general complaint, the most common advance was for $20, repaid in seven days with a $2.99 fee, which yielded an APR above 750%.

Moreover, some lenders use a variety of methods to push consumers to take out multiple small loans each pay period with multiplying fees. In addition, because the direct-to-consumer apps are not based on actual earned wages, many consumers end up borrowing from different lenders, and the fees can stack up causing them to fall further in debt. 

Because repayment of the loans and accompanying charges deplete the next paycheck, consumers often take out even more advances in the next pay period to meet basic needs.  A 2024 Center for Responsible Lending (CRL) study found that 75% of borrowers took out at least one advance on the same day or day after making a repayment. 

This can repeat or even accelerate with each succeeding pay period. An October 2025 CRL study found monthly loan use doubling in the first year from two loans per month on average in month one, to four loans by month 12.  It was also common for consumers to take out earned wage payday loans from multiple lenders in the same pay period. 

Earned Wage Payday Loans’ Hidden Consumer Injuries 

Taking out loans against a paycheck, and paying fees to do so, just leaves the next paycheck short and makes it more difficult for borrowers to cover future expenses. This leads consumers to take out increasing numbers of earned wage payday loans over time in an escalating cycle with more and more fees.  But there are other costs as well.

A 2024 CRL study found overdrafts on consumers’ checking accounts increased 56% on average after use of an earned wage payday loan. Overdrafts can result in nonsufficient funds charges by the bank and returned item fees by the payee if a payment is denied for insufficient funds. The overdraft may not even be the consumer’s fault if the earned wage payday lender takes repayment before the next payday because it fails to take a weekend or holiday into account when estimating the consumer’s payday or estimates the amount of pay incorrectly. 

Depleted paychecks after multiple advances also mean families may forgo essentials or turn to other predatory credit products to make ends meet.  Earned wage payday lenders either intentionally or unintentionally create a debt trap for consumers.

Except for Certain State Law Exemptions, Consumer Credit Laws Generally Apply to Earned Wage Payday Loans Despite Lenders’ Evasions 

Earned wage payday lenders claim their products are not loans and are outside the scope of consumer credit laws.  They characterize the advances as not loans or credit because purportedly they are non-recourse and do not create debt: in the rare cases where their access to the consumer’s wages or bank account does not result in full repayment, they promise not to sue (unless the consume engaged in “fraud”), not to use debt collectors, and not to report results to credit bureaus.   Lenders also claim that they are outside of lending laws because expedite fees, tips, and other costs are purportedly voluntary and therefore not interest or finance charges.

As discussed below, a few states—generally those that already permit payday loans—have enacted statutes to exempt earned wage payday loans from their credit laws. But absent such an exemption, courts to date have rejected these attempts to evade credit laws. This section explains in general terms why this is the case, and the sections below explain more specifically why Truth in Lending, the Military Lending Act, and state credit laws apply to earned wage payday loans and should subject earned wage payday lenders to significant consumer remedies. 

Moreover, even if an earned wage payday loan is not covered by credit laws, earned wage payday lenders’ practices, as described below, may violate state and federal laws against unfair, deceptive or abusive practices (UDAP). State wage garnishment laws and additional consumer legal claims involving employment law are not discussed in this article but are examined in NCLC’s Consumer Credit Regulation §§ 10.10.2 and 10.10.3.

As noted above, earned wage payday lenders claim that their advances are not loans because the loans are purportedly “non-recourse” and do not create debt. However, non-recourse loans—like reverse mortgages—are still loans. 

Moreover, the lenders have recourse to repayment from wages or a bank account, clearly expect to be repaid, and are highly successful 97% to 99% of the time in securing repayment. They communicate this expectation to consumers and take great pains—such as securing direct access to the consumer’s bank account—to ensure that repayment will in fact occur. 

Courts have rejected the argument that the purported non-recourse nature of earned wage payday loans means that they are exempt from consumer lending laws See Vickery v. Empower Fin., Inc., 2025 WL 2841686 (N.D. Cal. Oct. 7, 2025); Orubo v. Activehours, Inc., 780 F. Supp. 3d 927 (N.D. Cal. 2025) (Ga. law); Johnson v. Activehours, Inc., 2025 WL 2299425 (D. Md. Aug. 8, 2025) (same); NCLC’s Consumer Credit Regulation §§ 5.9.2.6, 10.10.4.3.2.

Moreover, under both TILA and state usury laws, courts look beyond the technical form of a transaction to its substance to prevent evasions. NCLC’s Truth in Lending § 2.1.2; NCLC’s Consumer Credit Regulation § 1.7.2. Earned wage payday lenders extend the advance with the intent and understanding that they will be repaid, and they almost always are.  See, e.g., Orubo v. Activehours, Inc., 780 F. Supp. 3d 927 (N.D. Cal. 2025).  For more on why these advances are debt and thus are loans despite non-recourse claims, see NCLC’s Truth in Lending §§ 2.2.2, 2.8, and Consumer Credit Regulation §§ 5.9.2, 10.10.4.3.2. 

Since many credit laws only apply if there is interest or a finance charge, earned wage payday lenders claim that their various costs are not interest or finance charges, arguing that tips, donations, and expedite fees are “voluntary”.  But the “voluntary” nature is undercut by tactics, including dark patterns and behavior manipulation, which are designed to compel users to leave a tip. 

For example, many earned wage payday loan transactions include a suggested tip amount and force users to navigate through multiple screens with counterintuitive designs to avoid leaving a tip.  Payday loan apps employ a host of other techniques to recover tips, like leveraging shame or guilt to discourage leaving no tip, providing reminders, and programming interfaces to give subtle behavioral nudges to encourage tipping. Consumers may believe that their access to the program will be cut off if they do not pay a sufficient “tip,” or they may have to jump through hoops to avoid the tip. 

Earned wage payday lenders also claim that expedite fees are optional and are not interest or finance charges. But as with the purported “voluntary” nature of the tips, expedite fees are not “optional” when the products are marketed as providing immediate, “instant” cash for those who do not want to wait until their next payday. One state attorney general complaint alleged that 83% of an earned wage payday lender’s transactions included an expedite fee and nearly 90% of all borrowers had been assessed a fee. 

Expedited payment fees are junk fees because they are far greater than the company’s cost of sending money instantly. Some providers also charge fees that—just like interest—go up as the size of the loan does even though the cost of instant payment does not.  

These tips, expedite fees, and other fees are interest or finance charges because they are incidental to the extension of credit. See Vickery v. Empower Fin., Inc., 2025 WL 2841686 (N.D. Cal. Oct. 7, 2025). TILA and most state credit laws also cover voluntary charges. For more on earned wage payday loan charges as finance charges or interest, see NCLC’s Consumer Credit Regulation §§ 5.2.2, 10.10.4.8 and Truth in Lending § 3.6.4.4.

TILA Cases on Earned Wage Payday Loans; Remedies for Failure to Comply with TILA Disclosure Requirements

To date, courts have consistently found that TILA applies to earned wage payday loans. Therefore, the failure to comply with TILA’s disclosure requirements should lead to individual or class statutory and actual damages and attorney fees. 

TILA applies if a transaction involves “credit” and the earned wage payday lender is a “creditor,” as TILA defines both.  

Earned wage payday loans involve “credit,” which is the right granted by a creditor to defer payment of debt or to incur debt and defer its payment. 15 U.S.C. § 1602(i); Regulation Z, 12 C.F.R. § 1026.2(a)(12). In fact, long ago courts and the Federal Reserve Board (which originally was in charge of Regulation Z) rejected the claim by payday lenders that they did not offer credit, and the official interpretation governing payday loans fits perfectly with earned wage payday loans. TILA’s Regulation Z Official Interpretation § 1026.2(a)(14)-2 provides “credit includes a transaction in which a cash advance made to a consumer in exchange for … the consumer’s authorization to debit the consumer’s deposit account, and where the parties agree … that the consumer’s deposit account will not be debited, until a designated future date.” 

Four 2025 federal decisions also reject earned wage payday lenders’ claims that the advances were non-recourse and thus do not involve credit under TILA, and a fifth did so implicitly. See Orubo v. Activehours, Inc., 780 F. Supp. 3d 927, 935–938 (N.D. Cal. 2025); Vickery v. Empower Fin., Inc., 2025 WL 2841686, at *5 (N.D. Cal. Oct. 7, 2025); Moss v. Cleo AI Inc., 2025 WL 2592265, at *3 (W.D. Wash. Sept. 8, 2025); Johnson v. Activehours, Inc., 2025 WL 2299425, at *8 (D. Md. Aug. 8, 2025). Golubiewski v. Activehours, Inc. did not specifically analyze whether the advances were credit, but the court found that the advances were subject to TILA because tips were incident to the extension of credit. 2025 WL 2484192, at *6 (M.D. Pa. Aug. 28, 2025). See also the analysis found in the Consumer Financial Protection Bureau’s (CFPB’s) Notice of Proposed Interpretive Rule, Truth in Lending (Regulation Z); Consumer Credit Offered to Borrowers in Advance of Expected Receipt of Compensation for Work, 89 Fed. Reg. 61,358 (July 31, 2024). (This proposed interpretive rule has not yet been rescinded, and in any event, it remains persuasive authority.)

Earned wage payday lenders are also “creditors.”  TILA’s definition of a creditor includes one that regularly extends consumer credit for which the payment of a finance charge is or may be required. 15 U.S.C. § 1602(g). Five 2025 federal court decisions find that the “tips,” donations, expedite fees, or other fees charged by earned wage payday lenders are finance charges as defined by TILA.  See Orubo v. Activehours, Inc., 780 F. Supp. 3d 927, 936–938 (N.D. Cal. 2025); Vickery v. Empower Fin., Inc., 2025 WL 2841686, at *6 (N.D. Cal. Oct. 7, 2025); Moss v. Cleo AI Inc., 2025 WL 2592265, at *4 (W.D. Wash. Sept. 8, 2025); Golubiewski v. Activehours, Inc., 2025 WL 2484192, at *6 (M.D. Pa. Aug. 28, 2025); Johnson v. Activehours, Inc., 2025 WL 2299425, at *9 (D. Md. Aug. 8, 2025).  See also the analysis found in the CFPB’s Notice of Proposed Interpretive Rule, Truth in Lending (Regulation Z); Consumer Credit Offered to Borrowers in Advance of Expected Receipt of Compensation for Work, 89 Fed. Reg. 61,358 (July 31, 2024). 

TILA regulations allow a disclosure of the finance charge to be treated as accurate if the error is no more than $5 for a transaction up to $1,000. 12 C.F.R. § 1026.18(d). But TILA still requires disclosure of the finance charge—even if the amount can be off by $5. TILA does excuse disclosure of the APR if the finance charge does not exceed $5 (or $7.50 if the amount financed exceeds $75). 15 U.S.C. § 1638(a)(4). While the APR need not be disclosed, all other TILA disclosures must be made—including the finance charge. Moreover, as discussed below, a disclosure of 0% APR may be deceptive and violate UDAP laws.

Military Lending Act Remedies When Earned Wage Payday Loans are Extended to Active-Duty Military or Their Dependents

When active-duty military or their dependents take out a loan, the credit must comply with the Military Lending Act (MLA), including a requirement that the “Military APR” (calculated similarly to a TILA APR, but including more types of fees in the calculation) be under 36%.  See NCLC’s Consumer Credit Regulation § 2.2.5. 

The Military APR for an earned wage payday loan will typically far exceed 36%, so any lender who extends an earned wage payday loan to a consumer on active duty or a dependent is likely violating the MLA.  This has significant practical importance because, as discussed further below, the MLA prohibits forcing a consumer’s claim into arbitration.

The MLA applies to earned wage payday loans because the MLA’s definitions of “credit,” “consumer credit,” and “creditor” in the MLA regulations, 32 C.F.R. § 232.3(f), (h), are substantively identical to the TILA definitions, so the discussion about TILA immediately above is applicable to the MLA as well.  Federal courts have had no problem finding that earned wage payday loans are credit under the MLA and that lenders must comply with the 36% Military APR.  See Moss v. Cleo AI Inc., 2025 WL 2592265, at *3 (W.D. Wash. Sept. 8, 2025); Vickery v. Empower Fin., Inc., 2025 WL 2841686, at *5 (N.D. Cal. Oct. 7, 2025). See also NCLC’s Consumer Credit Regulation §§ 5.2.2.4, 10.10.1a. 

In practice, many earned wage payday loans violate the MLA’s 36% cap on the Military APR since tips, expedite fees, or other charges are finance charges for purposes of the Military APR. See Consumer Fin. Prot. Bureau v. Moneylion Technologies Inc., 2025 WL 893684 (S.D.N.Y. Mar. 24, 2025). Even though these finance charges are typically very small, the small amount of the loan and its very short term result in astronomical Military APRs, clearly higher than 36%. 

One bonus in finding the MLA applicable to earned wage payday loans is that forced arbitration requirements in contracts are inapplicable to military borrowers and their dependents. Not only can MLA claims not be compelled into arbitration, but neither can any other claims involving the same extension of credit to active duty servicemembers and their dependents, such as TILA claims or state law claims. See NCLC’s Consumer Credit Regulation § 2.2.5.10.3; NCLC’s Consumer and Worker Arbitration Provisions § 7.4.  See also Vickery v. Empower Fin., Inc., 2025 WL 2841686 (N.D. Cal. Oct. 7, 2025); Moss v. CLEO AI Inc., 2025 WL 2592265 (W.D. Wash. Sept. 8, 2025). 

The MLA offers strong remedies for any violation—actual damages, $500 statutory damages for each violation, attorney fees, and the agreement is void from its inception.  See NCLC’s Consumer Credit Regulation § 2.2.5.10.1.

Earned Wage Payday Loans May Run Afoul of State Credit Laws 

Most earned wage payday lenders are not federal or federally insured depository institutions, so rate exportation and other forms of federal preemption will not apply.  As a result, earned wage payday loans may need to comply with state interest rate and other credit laws of the state where the loan is made. 

Some earned wage lenders do lend through banks, though those lenders do not deny offering credit. In addition, some style their loans as “overdrafts” on hidden bank accounts that are not designed to hold funds. Those manipulations should be rejected relying on courts’ ability to look beyond the form of a transaction to its substance. NCLC, et al., Comments in Support of CFPB’s Proposed Interpretive Rule on Earned Wage Advances 18–22 (Aug. 30, 2024). However, the overdraft evasion will pose additional preemption issues not addressed in this article.

Credit regulation not only varies by state, but each state will have in force several potentially applicable consumer credit statutes, such as small loan laws, installment loan laws, payday loan laws, general usury statutes, and—importantly—recent earned wage payday loan legislation in several states (discussed below). Remedies also vary but can include voiding the loan, actual damages, punitive damages, and attorney fees in some cases.

Litigation challenging earned wage payday loans requires an analysis of which state’s laws apply and the applicable law within that state.  While this determination is not always simple, earned wage payday loans may violate at least one state statute in most states.   

A good example are state small loan acts or installment loan laws (which may cover balloon payment loans as well) applicable to non-banks.  These laws cap the amount of interest and fees that may be charged.  See generally NCLC’s Consumer Credit Regulation Ch. 11, Appx. D. Although there are individualized state exclusions, in general these statutes should apply to earned wage payday loans.   

In many states, state installment loan laws are explicit that any assignment of wages in return for an advance of funds is a loan. See NCLC’s Consumer Credit Regulation § 10.10.4.2.  In states where the installment loan statute is not so explicit, courts may still find that earned wage payday loans are covered loans.  See Johnson v. Activehours, Inc., 2025 WL 2299425, at *5 (D. Md. Aug. 8, 2025); NCLC’s Consumer Credit Regulation §§ 10.10.4.3–10.10.4.5.

State payday loan laws may also be applicable to earned wage payday loans. For example, Orubo v. Activehours, Inc., 780 F. Supp. 3d 927 (N.D. Cal. 2025) (Ga. law), refused to dismiss a claim that earned wage payday loans violated Ga. Code Ann. § 16-17-2(b). That statute prohibits payday lending and applies to “to all transactions in which funds are advanced to be repaid at a later date.”  For more on payday loan laws and earned wage payday loans, see NCLC’s Consumer Credit Regulation § 10.10.4.6.

A state’s general usury statute (often called the “legal” usury rate) may also apply to earned wage payday loans. Typically, the general usury statute imposes a very low usury cap (i.e., 6%) but allows exceptions for lenders licensed under other credit laws such as the payday loan or installment loan statute. But because they claim not to offer credit, earned wage payday lenders do not obtain those licenses. 

In Golubiewski v. Activehours, Inc., 2025 WL 2484192 (M.D. Pa. Aug. 28, 2025), a federal court refused to dismiss a claim against an earned wage payday lender for violating Pennsylvania’s consumer loan law, which prohibits charging, collecting, contracting for or receiving interest, fees, charges, or other considerations that aggregate in excess of the 6% interest rate allowed by the state’s general usury law unless the lender is licensed. The court held that expedite fees and tips count toward the cap regardless of how they are labeled, if the lender collects or receives them. See also NCLC’s Consumer Credit Regulation § 10.10.4.8. Citations to each state’s general usury statute are found at NCLC’s Consumer Credit Regulation Appx. B. 

Recent Legislation and Guidance in Some States Provides That Earned Wage Payday Loans Are Either Covered by or Excluded from Other State Credit Regulation

The discussion above is about the application of a state’s general lending laws to earned wage payday lenders. But some states have exempted (or attempt to exempt) earned wage payday loans from some or all of the requirements of those laws, so litigators should familiarize themselves with recent state earned wage payday loan legislation, regulations and guidance. 

California, by regulation, Cal. Code of Regs. tit. 10, § 1009 (effective Feb. 15, 2025), defines earned wage payday loans as credit and requires companies to register with the state, though it exempts the loans from California’s rate cap and lending laws.

On the other hand, two new earned wage payday loan statutes specify that the advances are loans and limit fees, though at rates higher than the state’s usury cap. The statutes also provide some avenues for consumer relief:

• Conn. Gen. Stat. § 36a-555(17) (2025) defines earned wage payday loans as subject to the state’s Small Loan Law, though it exempts them from the state’s rate cap, allowing instead a total cost of $4 per transaction as long as the total per month on all loans does not exceed $30.  It requires the lender either to allow the consumer to access up to 75% of their wages (i.e., not to artificially limit loan size) or to limit earned wage payday loans to one per pay period.
• Md. Code Ann., Com. Law §§ 12-101(n), 12-318, 12-1501 to 12-1507 (all enacted in 2025) define an earned wage payday loan as a loan and limit expedite fees to $5 for an advance of up to $75.  For consumer-directed earned wage payday loans the statute sets the default tip at zero and requires disclosure as to whom the tip will be allocated.  It states that a lender that receives a tip that would otherwise exceed the state’s interest rate cap may not be found in violation if it refunds the tips that bring total charges above the usury cap within 30 days after the loan is made. 

In addition, Maine’s credit regulator has issued an advisory opinion finding that earned wage payday loans are loans covered under Maine’s payday loan laws. State of Maine Dep’t of Prof’l & Fin’l Reg., Bureau of Consumer Credit Protection, Advisory Ruling #121 (defining “earned wage access” products as “loans” and defining earned wage access providers as “creditors” or “supervised lenders” subject to the Maine Consumer Credit Code (June 11, 2025)). 

Several states—primarily states that already allow high-cost payday loans—have passed legislation specifying that earned wage payday loans are not loans, that tips, expedite fees and other costs are not a finance charge or interest, and that specifying that other state laws, including credit, wage garnishment, and money transmission laws, do not regulate an earned wage payday loan. These statutes generally include only minimal consumer protections.  These industry-sponsored statutes include:

• Ark. Code Ann. §§ 23-52-201 to 23-52-204, enacted by 2025 Ark. Laws Act 347 (may be preempted by the usury cap in the state constitution);
• Ind. Code §§ 28-8-6-101 to 28-8-6-1003, enacted by 2025 Ind. Legis. Serv. P.L. 222-2025 (H.E.A. 1125) (contains more consumer protections than the typical industry-sponsored bill);
• Kan. Stat. Ann. §§ 9-2401 to 9-2416;
• La. Stat. Ann. §§ 9:3591.1 to 9:3591.7;
• Mo. Rev. Stat. § 361.749;
• Nev. Rev. Stat. §§ 604D.010 to 604D.900;
• S.C. Code Ann. §§ 39-5-810 to 39-5-890;
• Utah Code Ann. §§ 13-75-101 to 13-75-106, enacted by Utah H.B. 279;
• Wis. Stat. §§ 203.01 to 203.08.

In addition, the attorneys general of Arizona and Montana have issued advisory opinions opining that earned wage payday loans are not loans. But those opinions are not binding on courts and are not persuasive for the reasons discussed in this article. A few other state regulators or attorneys general have issued opinions limited to the unique model used by one lender, FlexWage, in which the earned wages are sent directly by the employer. The attorneys general and FlexWage opinions are discussed in NCLC’s Consumer Credit Regulation § 10.10.4.10. For more on state laws and regulations specific to earned wage payday loans, see NCLC’s Consumer Credit Regulation § 10.10.4.9. 

 

UDAP Remedies Are Available Whether or Not Credit Statutes Apply to Earned Wage Payday Loans

Whether or not federal and state credit laws apply to earned wage payday loans, state UDAP statutes apply to earned wage payday loan lenders’ practices. Even if an industry-sponsored state statute exempts earned wage payday loans from credit laws, lenders must still comply with a state UDAP statute that prohibits deceptive and typically unfair, unconscionable and/or abusive practices. 

Most UDAP statutes apply to credit transactions, and the statutes almost always apply to services. See NCLC’s Unfair and Deceptive Acts and Practices §§ 2.1, 2.2.1. Even if credit transactions are outside certain UDAP statutes’ coverage, most earned wage payday lenders claim they are offering a service, not credit, so the UDAP statute should apply. 

UDAP remedies include actual and often statutory, multiple or treble damages, and attorney fees. Injunctive relief may be available and in California and D.C. individuals and organizations can seek wide-scale injunctive relief on behalf of the public. See generally NCLC’s Unfair and Deceptive Acts and Practices Ch. 12, Appx. A (state-by-state summary of remedies).

Earned wage payday lenders engage in many practices that deceive consumers, trick them into incurring excess fees, and make it difficult to escape a debt trap:

• Deceptive and manipulative practices regarding costs, including:

  • Disclosing 0% APR, “no interest,” or “interest free” for costly loans where up to 90% of users pay fees;

  • Promoting “instant” or “fast loans,” while hiding high “expedite” fees that almost all borrowers pay and which far exceed the cost to the creditor of instant delivery, and even delaying disbursement to induce payment of expedite fees;

  • Obscuring costs by hiding them on websites and apps or not fully disclosing them until the consumer is deep into the sign-up process for the loan. 

• Dark patterns that are unfair or abusive tricks to coerce purportedly voluntary “tips” and “donations,” including:

  • Using default options that include tips and fees automatically which consumers must affirmatively remove;

  • Deceptive and manipulative user interfaces that steer users towards accepting advances with costs or make it difficult to avoid tips;

  • Repeat requests for tips and the need to complete multiple steps to avoid a tip;

  • Deception around the purpose of a tip or amount of funds being donated;

  • Psychological manipulations and guilt, including implied threats of consequences for borrowers who do not tip.

• Advertising large loans that few borrowers receive and limiting loan size or pushing smaller loans to multiply fees.

• Creating obstacles to prevent consumers from canceling.

• Lending regardless of whether consumers can repay without further borrowing, leading to a cycle of dependence on new loans with additional fees. 

Federal and state agencies have brought several enforcement actions addressing these unfair, deceptive and abusive practices. See Amended Complaint For Permanent Injunction, Monetary Judgment, Civil Penalty Judgment, And Other Relief, United States v. Dave, Inc., No. 2:24-cv-09566-MRA-AGR (C.D. Cal. filed Dec. 30, 2024); Complaint for Permanent Injunction, Monetary Judgment, and Other Relief, Federal Trade Comm’n v. FloatMe Corp., No. 5:24-cv-00001-XR (W.D. Tex. filed Jan. 24, 2024); Complaint for Permanent Injunction, Monetary Judgment, and Other Relief, Federal Trade Comm’n v. Bridge It, Inc., No. 1:23-cv-09561 (S.D.N.Y. filed Nov. 2, 2023); Complaint for Violations of the Consumer Protection Procedures Act, District of Columbia v. ActiveHours Inc. d/b/a Earnin (D.C. Super. Ct. filed Nov. 19, 2024); Verified Petition, People v DailyPay, Inc. (N.Y. Sup. Ct. filed Apr. 14, 2025); Complaint, People v. MoneyLion, No 451303/2025 (N.Y. Sup. Ct. filed Apr. 14, 2025). 

More detail on these practices and on UDAP claims involving earned wage payday loans is found in NCLC’s Consumer Credit Regulation § 5.2.2.2.

A Note About Arbitration Requirements

Earned wage payday loan litigation, like much consumer litigation, will have to consider forced arbitration provisions. As explained in the MLA section above, active-duty servicemembers and dependents are not bound by arbitration provisions when they bring claims involving credit covered under the MLA.  This applies to both an underlying MLA claim and any other claim involving the same extension of credit.

There are other ways to challenge an arbitration provision as well. Earned wage payday loans initiated through a smartphone or website will try to bind the consumer to an arbitration provision found in the app’s or website’s terms and conditions viewable by clicking on a link. But the arbitration provision may be enforceable only if the consumer’s actions on the app can be reasonably considered as logically associated with agreement to the terms and conditions.  Also, courts may find consumers are not bound by arbitration requirements that are not conspicuous.  See generally NCLC’s Consumer and Worker Arbitration Provisions § 4.3.4.

An action under three different California UDAP-type statutes seeking public injunctive relief must be available to a consumer either in court or in arbitration.  An arbitration provision that provides for neither forum may be unenforceable. See generally NCLC’s Consumer and Worker Arbitration Provisions § 10.6. 

Another option is a mass arbitration where the same law firm brings the same claims in arbitration before the same arbitration provider on behalf of hundreds or thousands of users. This may turn the tables on earned wage payday lenders who then will do almost anything to avoid such arbitration. See generally NCLC’s Consumer and Worker Arbitration Provisions § 10.7.