Millions of Americans have probably been in a situation when they’ve needed a little extra cash to make ends meet until their next paycheck.

Many of them may have relied on short-term payday loans with very high interest rates or pawn shops that require you to put up something as collateral, but now there’s "earned wage access" (EWA) if you’re faced with an unexpected expense.

EWA, also called early pay, on-demand or instant pay, allows employees early access to money they've already earned, so it hasn't been regulated like a loan. To get your money faster, you could pay an expedited fee, usually a few dollars, and leave an optional “tip” for the service. Some companies like McDonald's and Walmart with large payrolls offer EWAs as a benefit. They wouldn't be able to process a lot of individual requests, and so they partner with third party companies who manage the process, financial experts said.

Those fees and tips, which some experts say add up for the most vulnerable consumers, have come under fire. Now, the Consumer Financial Protection Bureau’s proposing loan-like disclosures for them and is accepting public comments through Aug. 30.

It’s like “payday lending on steroids,” said Marshall Lux, senior fellow at Georgetown University’s Psaros Center for Financial Markets and Policy whose research includes authoring the report Earned Wage Access: An Innovation in Financial Inclusion.

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What would change under CFPB’s plan?

EWA fees and “tipping” would all be considered “finance charges” and disclosed as such, the CFPB said.

For example, the CFPB said it found workers took out an average of 27 loans per year, with an average transaction amount of $106. If the fees and tips employees paid were disclosed as an APR, the typical employer-partnered earned wage cash advance had a rate of 109.5%.

A 2021 study by the California Department of Financial Innovation and Protection said the average annual APR was just above 330% across nearly six million EWA transactions.

Deeming the fees and tips as finance charges would be a reversal of CFPB guidance in 2020 that said an employer-sponsored EWA “does not involve the offering or extension of ‘credit.’” The agency did not specify guidance for third-party providers who offer the service direct to consumers via apps or online platforms if their employer doesn't offer it.

In the U.S. Treasury’s fiscal year 2024 budget, the Treasury also proposed clarifying for tax purposes that “on-demand pay arrangements are not loans.”

Why is this important?

Many states have caps on how much interest lenders can charge on loans, said Phil Goldfeder, chief executive of American Fintech Council, which represents about a dozen EWA providers.

“If this is a fee, then it’s not an issue,” he said. “But if CFPB says it’s a loan, then that $3.50 fee equivalent (to an APR) moves the interest rate above” state caps. That would mean “companies can’t offer it (in those states) or companies have to alter products which could make it more expensive.”

CFPB estimates EWA transactions grew by more than 90% from 2021 to 2022, with more than 7 million workers accessing approximately $22 billion in 2022.

“CFPB in the name of helping consumers is harming millions of consumers,” Goldfeder said.

What do Americans think?

CFPB received more than a hundred comments, and reactions were mixed.

For example, Jo Bug wrote “I’m one of the Americans that use this service 50 times a year, because without it how would I live? I have almost $10,000 worth of medical debt on my credit report. I can't even get a secured credit card because of it. How does the CFPB expect people to live by removing this feature for people like myself? I have never left a tip…and never will, because I can't afford it. I make $21 an hour, work 10 hours of overtime, every week.”

But Tammy Hall in South Carolina wrote about family members who earn less than $40,000 a year, used EWAs and found themselves struggling even more.

“Because of emergencies like car repairs or unexpected medical bills they felt they had no other options but to borrow against their next paycheck,” Hall said. “Then the fees come out of the next check and now they do not have enough money to pay for gas to get to work or to buy food to feed their children. This is a predatory program that hurts American families. They prey on those that do not have very much to begin with and once they start borrowing money, many find themselves forced to continue to borrow more. This type of lending needs to be stopped.”

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Do Americans have other options?

Rick Miller, financial planner and investment adviser at Miller Investment Management, suggested these alternatives:

• If your company is small, ask your employer directly for an advance, instead of using an EWA: “There are many employers that would give you a cash advance or advance half your pay.” A small company may be able to accommodate your request, and there likely won't be any fees attached.
• Credit card cash advance: “Yeah, you might have a fee there and some interest if you can’t pay that advance off in 30 days, but at least you’re in control of it.”
• 0% credit cards: Your credit must be “decent,” though.
• Home equity line of credit, if you own a home and have built some equity: “It’s an easy way to get a small amount of cash to pay back at your leisure, with no fees or penalties but you have to pay interest. Depending on how fast you can pay it off, even a 20% APR, divided by 12 is a couple of percent per month may be not so significant.”
• A small line of credit from a credit union: “You wouldn’t have any significant fees associated with it.”

Remember, however, the key to these loan options is you must pay them back as soon as possible. If you repay the loan over six months, you get a bonus of improving your credit score, he said.

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.