State legislature approves bill to ease restrictions on 'earned wage access'
HBJ PHOTO | DAVID KRECHEVSKY
The State Capitol in Hartford.
Connecticut will once again allow companies to provide salary advances to employed state residents.
On the last day of the 2025 legislative session, the House overwhelmingly voted Wednesday to approve an amended version of Senate Bill 1396 by a 101-46 vote with four legislators not voting or absent.
The bill had been approved on May 30 in the Senate by a similarly wide margin of 32-3, with one senator not voting or absent.
The bill exempts advances of earned but unpaid wages or salaries to employed Connecticut residents from the state’s small loan law’s annual percentage rate (APR) and finance charge requirements, subject to certain restrictions.
It applies to advances for wage, salary, compensation or other income on an hourly, project-based, piecework or other basis that borrowers earn for working for an employer or acting as an independent contractor for someone obligated to pay them for their services.
The bill allows for these transactions even though they may exceed the small loan law’s 36% APR cap, but it also caps the total finance charge for such advances at $4 per advance or $30 per month.
An amendment to the bill also:
- Reduced the maximum possible income advance from $5,000 to “less than $750;”
- Sets the maximum per-advance finance charge at $4 instead of the original $5;
- Applies the $30 per month period finance charge cap to all income advances, rather than those that are part of a suite of services in a membership or subscription;
- And, limits income advances to one per pay period and requires providers to develop ways to prevent more than one from being made, among other restrictions.
The financial technology companies that provide such wage or salary advances have not operated in Connecticut since January 2024. That’s when new guidance for the industry from the state Department of Banking took effect.
Issued in September 2023 in response to changes adopted that year by state lawmakers, the new rules required so-called “earned wage access” (EWA) companies to be licensed and regulated as small loan providers.
More importantly, state lawmakers at that time also changed the formula used to determine a small loan’s annual percentage rate (APR), adding into the equation tips and subscription or convenience fees.
Those are key revenue sources for EWA providers, which allow customers to access already earned wages before payday. The previous changes pushed many of their customer transactions well over the 36% APR cap for small loans set by state law.
As a result of those past changes, most direct-to-consumer EWA providers stopped operating in Connecticut since the new rules went into effect, according to a report from the Center for Responsible Lending (CRL).
The bill approved Wednesday does obligate income advance providers to give borrowers certain disclosures, verify borrower income, reimburse overdraft or nonsufficient funds (NSF) fees in certain situations, prevent more than one income advance from being made against the same unpaid wage or salary income, and schedule payments for advances or finance charges on a single date within a certain timeframe after the advance.
Violations will be addressed by existing laws, which authorizes the state banking commissioner to suspend, revoke or refuse to renew a license; issue cease and desist orders; issue civil penalties; order restitution; or seek an injunction in court. Those actions generally are subject to prior notice and a hearing.
If signed into law by Gov. Ned Lamont, the new rules would take effect Oct. 1.
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