Nevada has become the first state to enact a law that establishes a financial services licensing regime for earned wage access services (aka on-demand pay services), which allow workers to access earned but unpaid income before payday. The legislation (SB 290) passed with strong support in both Nevada’s assembly and senate, and the governor approved the law on June 15, 2023. The law imposes licensing, reporting, examination, and other substantive requirements on providers, and it provides important regulatory certainty for these innovative financial services. The law may shape similar legislation in other states.
Licensing, Applications, and Renewals
The law prohibits a person from engaging in the business of a provider of earned wage access services without a license issued by Nevada’s financial services regulator, the Commissioner of Financial Institutions. Licenses are subject to annual renewal. Federally insured depository institutions are not subject to licensing.
- Personal history
- Financial history
- Background checks
- Credit reports
- Credit scores
The commissioner may participate in the Nationwide Multistate Licensing System and Registry (NMLS) with respect to the issuance and renewal of licenses. Fees for the application, initial license, and license renewal will be set by the commissioner, but may not exceed $1,000 (excluding NMLS fees). A licensee must post a surety bond, and its license must be displayed prominently on its website.
Approvals and Notices of Changes
The commissioner’s prior approval is required before a licensee may: (1) undergo a change in control or a change in ownership of 25% or more of its capital stock or equivalent ownership interest, (2) change its name, including a name under which it is doing business, or (3) change its principal business address or the address of any office it maintains in Nevada. Prior notice is also required before a licensee may change its principal officers or directors. Licenses cannot be transferred or assigned.
Annual Reports and Examinations
On or before April 15 each year, a licensee must submit to the commissioner an annual report containing audited financial statements, complaint information, and various types of usage data. The commissioner may also examine licensees at least annually and charge them for such examinations.
Commissioner’s Other Powers
The commissioner may engage in rulemaking, investigate potential violations, impose penalties (including administrative fines of up to $50,000), and take other disciplinary actions.
The law imposes substantive conduct requirements on providers, including:
- No Credit Reports. Providers may not use credit reports or credit scores to determine a user’s eligibility for earned wage access services
- Consumer Disclosures. Before entering into an agreement with a user, a provider must inform the user of his or her rights under the agreement and fully and clearly disclose all fees associated with the earned wage access services
- Free Option. Applicants must identify at least one option for a user to obtain the applicant’s earned wage access services at no cost to the user
- Tip Disclosures. Providers who solicit tips must conspicuously disclose (1) that tips do not inure to the direct benefit of any particular employee of the provider and (2) an option for the user to select zero as a tip amount
- No Late Fees. Providers may not impose late fees or other penalties for a user’s nonpayment
- No Sharing Fees or Tips with Employers. Providers may not share with a user’s employer any fees (including expedited delivery fees and subscription or membership fees) or tips received from or charged to a user for earned wage access services
- Overdraft Fees. A provider who seeks payment by debiting a user’s bank account must reimburse the user’s overdraft or non-sufficient funds fees caused by the provider in certain circumstances
- No Debt Reporting or Collection. Providers may not (1) report a user’s nonpayment to a consumer agency or debt collector, (2) use a third party to pursue collection from a user, (3) sell or assign a user’s outstanding amounts to a third-party collector or a debt buyer for collection, or (4) attempt to compel a user to pay in a civil action
Relation to Other Laws
The law clarifies that earned wage access services provided by a licensee are not loans or money transmission under Nevada law, and they are not subject to Nevada’s existing laws governing loans and money transmitters.
In general, the law becomes effective on July 1, 2024, with exceptions for certain rulemaking and administrative provisions. The law also requires the commissioner to prescribe the form and content of a license application on or before September 30, 2023. As a result, it will be difficult for providers to comply with the licensing requirement until the commissioner has released an application form. The law, however, includes a limited grandfathering provision, which authorizes a person who, as of January 1, 2023, was engaged in the business of providing earned wage access services in Nevada to continue to do so without obtaining a license until December 31, 2024, if that person submits an application for such a license before January 1, 2024 and otherwise complies with the law.
Providers should promptly evaluate their systems, procedures, and disclosures for compliance with Nevada’s new requirements, as very little time exists before they go into effect. Providers should also be prepared to apply for licenses once the commissioner releases an application form. Familiarity with Nevada’s unprecedented law is also important for industry participants, as it may shape similar legislation pending in other states.