Digital payment services are confronted with control by Vermont legislators – VTDIGGER

Vermont legislators are struggling with how best to regulate online payment services, a growing industry that has been able to work in a legitimate gray area in the state for years.

Last week, members of the Chamber of Commerce and Economic Development Committee took H.99, a bill aimed at regulating so -called wage access services that allow employees to have access to profit before the end of the payment period. As initially written, the bill would release the companies that offer these digital tools to pay the requirements for reporting and tariff restrictions that apply to Vermont loan suppliers.

But on Thursday, after listening to the testimony of defenders who argued in favor of regulating services for access to salaries as loans, legislators signaled that they would review the bill by potentially imposing steep provisions on such programs.

“With something like this, we have to be very careful and make sure that we are protecting the people there and at the same time possibly allow the business to move forward in the state,” President Michael Marcot, R-Coventry, said at the Committee at the Committee at the Committee Thursday.

Although wage access services first appeared about a decade ago, the industry has been ballooning in recent years. Approximately 5% of US workers have used wages won services in 2022, according to Federal Consumer Financial Protection Bureau, which designs that this number has probably increased dramatically since.

It is not clear how many Vermonters used digital payment applications, but testimonies from three online payment providers operating in the state-Payactiv, Earnin and Dailypay-suggest that it can be in tens of thousands.

Most employers pay workers either at either two weeks or monthly. Payment services are intended to circumvent these traditional payment cycles, allowing consumers to have access to some of their salaries in advance and then pay off those funds when their actual salary arrives.

“Part of the problem we are trying to solve is that if you live to pay check to pay a check, you can only have $ 50 in your bank account, but you have hundreds or even thousands of dollars that are legitimately yours, But you don’t have access to it, “said Ben Laroko last week, a lobbyist in the industry.

But consumer defenders claim that due to the fees associated with most digital payment services, they function similar to traditional payment loans that loot low -income workers by capturing them in unhealthy loan cycles.

Many of these digital applications offer a version of their service for free, which requires users to wait a few days to receive their funds. However, for accelerated transfers, workers have to pay fees that usually range from $ 2 to $ 5 per transaction, according to data from the Consumer Financial Protection Bureau. Some applications also require grants, repeatedly encouraging users to provide “tips” to express their support for the service.

“People who develop these programs know that when there is a slow payment and quick payment option, almost everyone will choose a quick payment,” Jeff Walsh, a lawyer for the National Center for Consumer Law, told the legislators last week. “They know that this is a vulnerable group that needs money right away and they design their business model to prey mainly to this group of persons in financial disabilities.”

A consumer financial protection bureau survey analyzing eight companies offering these applications found that about 90% of users in 2021 and 2022 pay at least one fee, with over 80% of total transactions during this period of time Includes fees. Consumers also made an average of over two wages per month, found the study, suggesting that most of them were reusable.

Walsh said that by introducing users into these borrowing models, the services are functionally charged the workers for whom they occupy their pay rates.

“(Workers) in a sense they pay to receive their salaries,” he said. “They take on more debt, which leaves them less capable of meeting their important needs because they pay the fees that are accumulated to these wage access programs.”

After flying under the radar of regulators for years, salary access companies are confronted with increasing control by federal regulators and state legislators across the country.

“The industry is developing,” Aaron Feren, a Deputy Commissioner for Banking at the Ministry of Financial Regulation in Vermont, said in an interview. “It was something like a new zone.”

In July, the Federal Bureau of Financial Protection of Consumer proposed a “rule of interpretation” that will determine the services for access to salaries as loans, subjecting them to strict federal and state credit provisions. This rule has not yet been finalized, a process that may take months, according to Walsh, who suggested that the rule is unlikely to come into force with President Donald Trump in the White House.

In the absence of federal regulations, Vermont MPs are now trying to determine how to best regulate these services at the state level.

As introduced, H.99 will define wage access services as non-grain, released companies that provide the services of the licensed Law on Vermont Creditors, which defines an APR or an annual rate per rate per rate of 18% for the loan products. The National Consumer Protection Bureau has estimated that won services won can have an average APR of up to 330%, suggesting that they will deal with Vermont’s creditors if they are regulated as loans.

On Thursday, Howver, Marcotte Said That Members of the House Committee of Commerce and Economic Development Work with Industry Leaders and State Regula s While Leaving Room for Earned Wage Access Companies to Continue to work in the state.

“We are probably in the space where we all agree to be a loan,” reporter Michael Marcot said on Thursday. “How to deal with this now is the question?”

If legislators do not answer this question, according to Ferenc, the Ministry of Financial Regulations is likely to eventually start regulating digital payment services as loans.

In anticipation of legislative actions, said Feren, the department “will probably work and develop and issue guidelines for the industry that states why we think these are loans covered by our Law on Borrowers, and how we want to engage in the public in these transactions S ”

“We would look at the observance of observing forward, not actually trying to look back to say that we have caught these companies to work illegally for several years,” he said.