Kansas Becomes Fourth State to Enact Law Regulating Earned Wage Access Services

Kansas has become the fourth state (and the second in 2024) to enact a law that establishes a financial services oversight regime for earned wage access services, also known as on-demand pay services, which allow workers to access earned but unpaid income before payday. The governor approved the legislation (HB 2560) on April 19, 2024. Kansas’s law imposes registration and other substantive requirements on providers, and it provides important regulatory certainty for these innovative financial services in the state. Along with Missouri, Nevada, and Wisconsin’s laws, Kansas’s law may shape similar legislation in other states.

Registrations and Exemptions

The law prohibits a person from engaging in or holding itself out as willing to engage in any earned wage access services business with a consumer without registering with Kansas’s financial services regulator, the Kansas State Bank Commissioner. Among other details, registrants must submit to the commissioner information about the registrant; its owners, officers, partners, members, principals, or directors; and any other information the commissioner deems necessary to evaluate the financial responsibility, financial condition, character, qualifications, and fitness of the applicant. An applicant must post a surety bond. Registrations will expire annually on December 31, and renewal applications must be submitted to the commissioner at least 30 days before such expiration. There will be initial registration and renewal fees to be established by the commissioner. The law’s requirements do not apply to bank holding companies, banks, and certain of their subsidiaries.

Notices of Changes

Within 15 days of any of the following events, a registrant must submit a report to the commissioner: (1) bankruptcy or reorganization by the registrant; (2) a revocation, suspension, or other proceeding against the registrant by a governmental authority that is related to the registrant’s earned wage access services business in any state; (3) the addition or loss of any owner, officer, partner, member, principal, or director of the registrant; (4) a felony conviction of the registrant or any of the registrant’s owners, officers, members, principals, directors, or partners; (5) a change in the registrant’s name or legal entity status; or (6) a change in the registrant’s principal place of business. A registration cannot be transferred or assigned.

Commissioner’s Powers

The commissioner may investigate and examine providers of earned wage access services and their offices and records and may compel witnesses and the production of relevant documents and records. The commissioner may also engage in rulemaking, impose penalties (including administrative fines), and take other disciplinary actions.

Annual Reports

On or before April 1 each year, a registrant must submit an annual report to the commissioner relating to the earned wage access services provided by the registrant in the state during the preceding year.

Conduct Requirements

The law imposes substantive conduct requirements on registrants, including:

• “Non-recourse” basis. All proceeds and fees must be treated as “non-recourse” payment obligations, meaning in this context that the provider may not compel or attempt to compel their payment by a consumer through certain specified means.
• No credit scores. Providers may not use credit scores to determine a consumer’s eligibility for earned wage access services.
• Free option and consumer disclosures. Before entering into an agreement with a consumer, a registrant must inform the consumer of his or her rights under the agreement, fully and clearly disclose all fees associated with the earned wage access services, and fully and clearly disclose how the consumer may obtain proceeds at no cost to such consumer.
• Delivery methods. Registrants may provide proceeds to a consumer by any means mutually agreed upon by the consumer and registrant.
• Compliance with other laws. Providers must comply with all local, state, and federal privacy and information security laws, and providers who seek payment from a consumer’s depository institution must comply with the applicable provisions of the Electronic Fund Transfer Act.
• Tip disclosures. Registrants who solicit, charge, or receive tips must: 
  
  • Disclose immediately prior to each transaction that a tip amount may be zero and is voluntary
  • Disclose in their agreement with the consumer and elsewhere that tips are voluntary and that the offering of earned wage access services (including the amount of proceeds a consumer may request and the frequency proceeds are provided to a consumer) is not contingent on whether a consumer tips or the size of the tip
  • Refrain from misleading or deceiving consumers about the voluntary nature of tips
  • Refrain from making representations that tips will benefit any specific individuals
• No interest or late fees. Providers may not charge interest or finance charges, late fees, deferral fees, or other penalties for a consumer’s nonpayment of outstanding proceeds, fees, or tips.
• Expedited delivery fees. Registrants may not charge unreasonable fees for expedited delivery of proceeds to a consumer.
• No credit payments. Providers may not accept credit of any kind as payment from a consumer of outstanding proceeds or non-mandatory payments.
• No sharing fees or tips with employers. Providers may not share with a consumer’s employer any fees (including expedited delivery fees and subscription or membership fees) or tips received from or charged to a consumer for earned wage access services.
• Overdraft fees. A provider who seeks payment from a consumer’s depository institution must inform the consumer when the provider will make each attempt to seek payment of proceeds and reimburse the consumer’s overdraft or nonsufficient funds fees caused by the provider in certain circumstances.
• No debt reporting or collection. Providers may not (1) report a consumer’s nonpayment to a consumer agency or debt collector; (2) use a third party to pursue collection from a consumer; (3) use outbound telephone calls to attempt collection; (4) sell a consumer’s outstanding amounts to a third-party collector or a debt purchaser; or (5) attempt to compel a consumer to pay in a civil suit in a court of competent jurisdiction.

Relation to Other Laws

The law clarifies that earned wage access services provided by a registrant under Kansas law are not loans or money transmission and are not considered violations of laws governing the sale or assignment of, or an order for, earned but unpaid income. It also clarifies that fees (including expedited delivery fees and subscription or membership fees) and tips for such services are not considered interest or finance charges. The law confirms that registrants are not subject to the state’s uniform consumer credit code with respect to earned wage access services provided in accordance with this new law.

Compliance Timelines

The law becomes effective upon publication. The law anticipates that the commissioner will prescribe a registration form that will be used by providers to register. The law includes a limited grandfathering provision, which authorizes a person who, as of January 1, 2024, was engaged in the business of providing earned wage access services in the state to continue to do so without a registration until the commissioner has processed that person’s registration application, if that person submits an application for such a registration within three months after the commissioner has prescribed the registration form and otherwise complies with the law.

Next Steps

Providers should promptly evaluate their systems, procedures, and disclosures for compliance with Kansas’s new requirements. Providers should also be prepared to register promptly once the commissioner releases a registration form. Familiarity with Kansas’s law is also important for industry participants because it, along with Missouri, Nevada, and Wisconsin’s laws, may shape similar legislation pending in other states. To learn more about this law and how it may affect your business or to discuss other aspects of earned wage access services, please contact Alexander J. Callen at acallen@goodwinlaw.com or 202-346-4161.

 

---

Goodwin’s Fintech group strategically leverages its regulatory, transactional, and litigation and enforcement practices to provide full-service support in every vertical of fintech and financial services, including lending, payments, alternative finance, deposits, brokerage and wealth management, digital currency and blockchain, insurance and insurtech, and transactions, including bank partnerships and deal due diligence.

 

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee a similar outcome.