South Carolina has become the fifth state (and the third 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 (S 700) on May 21, 2024. South Carolina's law imposes registration and other substantive requirements on providers, and it provides important regulatory certainty for these innovative financial services in the state. South Carolina joins Kansas, Missouri, Nevada, and Wisconsin, each of which have adopted similar legislation.
Registrations and Exemptions
The law prohibits a person from providing earned wage access services to a consumer without registering with South Carolina's consumer protection agency, the South Carolina Department of Consumer Affairs. Among other details, an applicant must submit to the department information about itself, its privacy policy, and its fee schedule. An applicant must post a surety bond. Registrations will expire annually, and the renewable period runs from May through June. The initial registration fee and renewal fees will be $1,000. The new law's requirements do not apply to banks, credit unions, savings and loan associations, savings banks, or trust companies. A registration cannot be transferred or assigned.
Department's Powers
The department may impose penalties (including administrative penalties) and take other disciplinary actions against providers that have violated or failed to comply with the new law.
Annual Reports
On or before June 30 each year, a provider must submit an annual report to the department relating to the provider's business in the state during the preceding year.
Conduct Requirements
The law imposes substantive conduct requirements on providers, including:
- No credit scores. Providers may not require credit scores to determine a consumer's eligibility for earned wage access services.
- Free option and consumer disclosures. Before providing earned wage access services to a consumer, a provider must inform the consumer of the terms and conditions of the services, disclose how the consumer may obtain proceeds at no cost to the consumer, disclose any fees directly imposed by the provider for the services, and provide a phone number or website through which consumers can submit complaints, along with the website and telephone number of the department.
- Delivery methods. Providers may provide proceeds to a consumer by any means mutually agreed-upon by the consumer and provider.
- 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 account at a depository institution must comply with the applicable provisions of the Electronic Fund Transfer Act.
- Tip disclosures. Providers 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 service contracts 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, late fees, deferral fees, or other penalties for a consumer's nonpayment of outstanding proceeds.
- No credit card payments. Providers may not accept payments of outstanding proceeds, fees, or tips from consumers via credit card or charge card.
- No sharing fees or tips with employers. Providers may not share with an 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 disclose to the consumer when the provider will attempt to seek payment of proceeds and reimburse the consumer's overdraft or nonsufficient-funds fees caused by the provider in certain circumstances.
- Payroll deductions. If a provider seeks payment via payroll deduction, the provider's terms and conditions must inform the consumer that by using the provider's earned wage access services, the consumer consents to repayment from the consumer's employer or its payroll services provider.
- No debt reporting or collection. Providers may not (1) report a consumer's payment or nonpayment to a credit reporting agency or debt collector; (2) use a third party to pursue collection from a consumer; (3) sell a consumer's outstanding amounts to a third-party collector or a debt purchaser; or (4) compel or 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 with respect to earned wage access services provided by a provider in compliance with the new South Carolina law, proceeds are not loans or consumer loans, providers are not lenders with respect to such services, fees (including expedited delivery fees and subscription or membership fees) and tips for such services are not considered loan finance charges, and the services are not wage assignments under the South Carolina Consumer Protection Code. The law also clarifies that providers are neither deferred presentment providers with respect to such services, nor engaged in the business of money transmission.
Compliance Timelines
The law becomes effective six months after the governor's approval. The law anticipates that the department will prescribe a registration form that will be used by providers to register. The law does not include a grandfathering provision.
Next Steps
Providers should promptly evaluate their systems, procedures, and disclosures for compliance with South Carolina's new requirements. Providers should also be prepared to register promptly once the department releases a registration form. Familiarity with South Carolina's law is also important for industry participants because it, along with the laws in Kansas, Missouri, Nevada, and Wisconsin, may shape similar legislation pending in other states.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.