Compliant On-Demand Pay with Jason Lee, CEO of DailyPay – The Source Episode 1

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Episode Description: Welcome to The Source where DailyPay CEO, Jason Lee, discusses compliant on-demand pay and topics spanning from debiting to neo-payday loans.

About Our Speakers

Jason Lee DailyPay
Jason Lee

Jason Lee is CEO and co-founder of DailyPay, a venture backed financial technology company that enables employees to access their wages before payday. DailyPay partners with large enterprises to offer its technology solution to their workforces, which results in a meaningful reduction in turnover and related cost savings. Every Saturday morning, Jason enjoys spending his time at the Father’s Soup Kitchen, helping serve hot breakfast to New York’s homeless population.

Michael Baer, Host

Michael Baer is the host and executive producer of The Source podcast. Michael previously oversaw domestic and international payroll news and analysis at Bloomberg Tax, previously BNA. 

In a career spanning three decades, Michael transformed the role of managing editor, becoming an information services leader who managed every aspect of world-class global products and platforms, while continuously increasing revenue and achieving market-best customer satisfaction. He directed a team of editors and writers who were charged with translating complicated tax and labor laws into English so non-lawyers could easily understand and apply them, and was integral in organizing and placing that content on easy-to-access web platforms, resulting in the highest net promoter scores the company had seen for any of their offerings. 

Michael has been a frequent public speaker for conferences and webinars, and now is the host of The Source, sponsored by DailyPay. Michael joined the DailyPay team in 2019.

In this podcast you will learn about…

  • Why California Bill (SB472), which would have regulated on-demand pay, died in the legislature
  • How debiting accounts for on-demand repayments is like payday loan activity
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Thanks for tuning in!

Podcast Transcript:

Speaker 1:

Welcome to The Source, your monthly resource for regulatory updates and issues in the on-demand pay industry. The Source is brought to you by DailyPay the industry leading provider of the DailyPay benefit. This material is for general information only. And the views expressed here in reflect only the views of DailyPay. This program should be considered marketing material and should not be relied on for legal tax accounting or regulatory advice. And now let’s welcome our host Michael Baer. [inaudible 00:00:35]

Michael Baer:

Hello everyone. I’m Michael Baer, former managing editor at Bloomberg Tax. And welcome to The Source. This is the premiere broadcast of what promises to be a very interesting series of webcasts and calls. The Source sponsored by DailyPay will be your look into active, and upcoming legislation, industry insights, and news, and a chance to understand the complexities and questions surrounding issues in the early pay industry. As will be a tradition that we’re going to do on The Source is noting this day in legal history. So today, October 2nd, marks, the date in 1967, when Thurgood Marshall, the first African American Supreme court justice was sworn in, and just kind of a little fun fact from a few years back, and on today’s episode of The Source, we’ll be speaking with Jason Lee, CEO of DailyPay to discuss some major regulatory updates that have taken center stage in the DailyPay industry. Jason, welcome.

Jason Lee:

Thanks, Michael. Thrilled to be here. By the way, nice call on that piece of legal trivia. That is an excellent, excellent find there. I think my favorite Thurgood Marshall quote has always been that in recognizing the humanity of our fellow beings, we pay ourselves the highest tribute and that is definitely something that I’ve kind of held on to as well here at DailyPay.

Michael Baer:

Yeah. They had quite a poignant quote there. Well today we’re going to go through a few updates from California and New York. Also, we’re going to discuss the state of regulatory action surrounding the industry, and then hear a little bit about why these developments are important and what do they mean for the industry on the whole? So turning to updates from California last month, the California state legislature moved to stop California Senate bill 472 from going to a floor vote in the current legislative session. So what does that mean? By way of background, this bill was originally proposed to provide statutory clarity that payments made in connection with earned wages were not consumer loans. So, Jason, tell us a little bit about what happened with California Senate Bill 472.

Jason Lee:

Yeah. So, Michael, there’s a lot to unpack here and I think a lot of clarification that probably your listeners would actually benefit from. So let me maybe start with the following concept, which is in general regulators don’t mind, in fact, they love it when there are providers or vendors or parties in the marketplace that are providing money to consumers. Of course, regulators like that. People like when you give things to consumers. What regulators, however are intensely focused on is actually then how does that money get paid back? And so just to unpack that a little bit, what happened in SB 472, the bill out in California was really about that. Meaning everyone loves the fact and everyone sort of gets the idea that, hey, people are living paycheck to paycheck. And that includes 80% basically of Americans who are in a situation who are living paycheck to paycheck, and even regulators understand that they want to solve that problem.

Jason Lee DailyPay:

There must be a way to fix the fact or to address this need that so many Americans have. In the context of SB 472., however, the actual bill that was proposed really resulted in a fairly objectionable practice that would have been codified, had the bill gone through. In other words, the bill was less about, hey, does giving out money to consumers or employees does that count as a loan? That really wasn’t the issue that underlied the controversy around this bill. The real issue around this bill was the way in which the provider would be paid back. And the piece that people objected to, and the piece that the regulators objected to was really around, hey, if you give money to the consumer, we don’t want you to go out and debit their bank account to get paid back. In fact, if you go out and debit the consumer to be paid back, well, that creates other issues.

Potentially the consumer might not have enough money in her bank account. That might trigger a not sufficient funds fee. There might be a penalty that the consumer has to pay. And so when you look at this bill and why is it that failed, what essentially happened was everyone agreed that there must be a way to give money to people who don’t have money in between paychecks. Like that wasn’t the difficult part. The difficult part that actually arose was the fact that there were many, many stakeholders who said, “Yeah, I get it. We want to give people this money, give them what is theirs”, however, it’s their money. We don’t like if you go out into their bank account to go debit their bank account to take it back. Because at the end of the day, Mike, what you’ll probably recognize is if you do that, it really does turn this into more of a consumer loan than something that looks more like DailyPay or payroll. Does that make sense?

Michael Baer:

Yeah, that makes sense. And from what I understand, I mean, the public law center in opposing the bill said it simply authorizes the new form of payday lending.

Jason Lee:

Yeah, that’s exactly right. I mean, what really happened here was the people who we look to protect Americans. So, whether that be regulators in this case in California, whether it be consumer advocate groups, so you had mentioned the public law center, there were a number of others, East Bay Community Law Center, that’s one of the largest in California. The National Consumer Law Center, the NCLSC, down in DC, even they weighed in, I think the NCLSC, I have their quote here in my notebook. They said we feel that the current bill, IE, the bill that would authorize debiting, is worse than no law at all, and will actually harm consumers, both in California and nationally. And so when I look at these folks, Public Law Center, East Bay, Community Law Center, The National Consumer Law Center, frankly, these are people who have spent their professional lives studying and thinking and advocating for consumers.

Jason Lee:

And in many cases, low income consumers. People who work hourly jobs and their point of view on California SB 472 was really, “Look, we get it. We need to solve the problem of people living paycheck to paycheck. We are all supportive of that view.” And if you actually read their letters, they actually are very supportive of the concept of DailyPay. However, we don’t like if you then give money to a consumer and then take it back by debiting their bank accounts, because in that scenario, you’re essentially, as you said, Michael, authorizing a quote, new type of payday loan, which is what the public law center really pointed. So, it’s a little bit complex.

Jason Lee:

And I think some of your listeners may need to listen to this twice, Michael, but as a side note, I always listen to you twice, but I think some of your listeners will probably need to listen to this twice to kind of get the nuance here. But the nuance that really came out from this whole dialogue, which was a super healthy one, was, hey, everyone wants to solve this problem of helping people like get over the paycheck to paycheck phenomenon, but boy, it’s got to be done in the right way. It needs to look more like payroll. It needs to be something where an employee receives their money, and they never have to pay it back as opposed to someone going back into their bank account and debiting and withdrawing funds.

Michael Baer:

Well, and I think what’s kind of noteworthy here, Jason is that California legislature seemed to validate that and make a distinction between DailyPay vendors and Neo payday lenders by not allowing that legislation to go forward.

Jason Lee:

Yeah. I mean, look, I sort of tip my hat to those in California. I mean, it took a few months. Actually, Michael, it’s funny. I was seeing articles from the media all throughout 2019, basically calling this the quote on demand pay bill, and Michael, I think maybe even in your former life, I may have seen an article or two coming out of Bloomberg Tax with that headline and the sort of respectful objection that I always had on this was, this is not really the on demand pay bill. That’s not really the controversy. That’s not really what’s at issue. Of course, employers, of course, regulators, of course, employees want to be able to access their money ahead of payday. That’s truism. Of course they do. Everyone wants to avoid paying overdraft or late fees.

Jason Lee:

So everyone was in violent agreement on that point, the part that was trickier, however, was the California legislator basically stepped up and said, “Look, we cannot allow debiting. We just cannot allow any provider to go into someone’s bank account and debit or extract money that in theory was there to begin with.” And I think from that standpoint, they really did make this distinction between a DailyPay provider. In other words, a provider who gives an employee money and never takes it back versus providers who have more aspects of payday lending associated with it in the sense that they’re giving money, but then debiting the account. And again, these really, aren’t my words. I’m really more just quoting from these consumer advocates who essentially called those models, payday lending models.

Michael Baer:

Right. Well, thanks, Jason. That’s really helpful. And maybe so people don’t have to listen again, could you speak a little more specifically about the particularly troubling features like debiting that vendors utilize that really raised the red flags to that legislature? And what can we conclude about that legislature’s priorities through analyzing what happened here?

Jason Lee:

Well, look, I’m sort of a simple person and you’ve spent years in payroll, Michael, so maybe I’ll share this as an industry insider. I think this is a very simple issue. People earn money, then they get it and then they get to go home. And whether they’re getting paid on a daily basis on a weekly basis, on a monthly basis, when you get money, you get to keep it. And for all we care, you can move to China or move into a forest and never come back out. There is never an obligation to ever pay those funds back. No one’s ever tapping on your bank account to get that money back. That is very distinct. And what the California legislature said was, “Hey, we need to parse through this a little bit. That sounds like payroll, and well, we understand that.”

Jason Lee:

And very simply they sort of said, “But wait a minute, if you’re giving people money, that quote is for work, they’ve earned or for hours or wages they’ve already earned, but then later on payday going into their bank account and taking it back?” Well, I remember one Senator said to me, “That’s never happened with my pay.” I’ve never had someone issue me a paycheck and then come in and take the money back.

Jason Lee:

Boy, that feels like a loan to me. And so that senator’s view really carried through to the rest of the legislature where folks kind of said, “Look, let’s be sensible. I too have never had my paycheck debited from my own account, boy, this kind of feels and smells like something different than DailyPay.” And so Mike, that’s really what sort of unfolded here in the final days of the bill you would ask, “Hey, what can we take out of it? What sort of the takeaway from the bill not going through?” And again, I kind of like to keep things simple. It’s very clear that bill did not go through because a lot of smart people, a lot of folks who are very vocal about protecting employees and protecting consumers do not want providers and vendors to be debiting any bank account for any reasons.

Michael Baer:

So, I mean, it seems like the implication is that no early access to pay program should incorporate wage deductions as part of that offering. I mean, am I right? That’s what seems to come out of all of this?

Jason Lee:

Yeah. Look, I think embedded in that are a couple of issues. Certainly some programs do there are some programs that sort of rely on a payroll deduction, meaning the employer itself is deducting the amount of the advance out of the paycheck. And certainly that is one way to do it. But as you know, Mike, in certain States, you can’t do that. [inaudible 00:15:42] And so in states like California, frankly, those programs really just shouldn’t be offered at all. Because again, follow my logic if you are in fact, doing wage deductions and those are expressly prohibited in California, well in California, either you need to find some other way to get that money back. And certainly what the California legislature has said is “Look, no wage deductions, but also no debiting”, because by virtue of us shutting down this bill we are telling you, you better not be going into these people’s bank accounts to take the money out.

Michael Baer:

And so you noted that the California legislature seems to be drawing a line between what our true DailyPay vendors and these Neo payday lenders. And so what are the common features of these Neo payday lenders and how can companies that are approached, identify traits of these payday lenders in disguise?

Jason Lee:

Well, California, this whole bill, and you probably have heard a little bit about what’s going on in New York. I’m not sure if you’ll be covering that here on The Source this month or next month. But I think both states have kind of figured out that boy while this sounds all the same giving earned wages or earned money or DailyPay to the employees, the devil really is in the details and it really gets around how does one get paid back? This sort of new concept of Neo payday lending is really one that kind of was born out of this whole California dialogue. What a lot of the consumer advocates. And again, I’m just quoting from them. What a lot of the consumer advocates said was, boy, this feels like new payday lending, or I think one group said payday lending 2.0, I think we call it Neo payday lending.

Jason Lee:

But essentially they’ve drawn a distinction clearly between companies that kind of interact directly with consumers or frankly through the employer, but rely on debiting to take that money back versus more traditional payroll structures where you just give the money out and you use a vendor to do that. And the employee doesn’t have to ever pay it back not dissimilar to obviously traditional payroll. So I think that’s kind of the concept. New York is obviously looking into this as well, this concept. And so I don’t know if you’ve had any thoughts Mike, on that? If you’d like us to share a little bit more about what’s going on here in New York?

Michael Baer:

Well, I’m glad you brought that up because the features of Neo pay day lending is it’s coming to light, and what’s going on in New York is as many know the New York department of financial services has launched an inquiry just a couple months ago into allegations of unlawful online lending and otherwise unlawful interest rates and the guise of tips, monthly membership and/or exorbitant, additional fees, improper overdraft charges on vulnerable, low income consumers. The DFS of investigation is focusing on whether companies are in violation of state banking laws, including usury limits, licensing laws and other applicable laws, regulating payday lending and consumer protection laws. So, Jason, tell us a little bit about how the result in California might shed some light on that DFS investigation in New York.

Jason Lee:

Yeah. So look, I mean, for your listeners, obviously I can only speak from sort of a… I’m a sort of observer of what’s going on here in the cheap seats, because obviously we’re not captured, or we as a company are not captured by the things or the types of activities that the DFS is looking into. So let me maybe give you my view here from the bleacher seats, which is the New York regulators they’re sharp folks and they’re quite sensible. What they’ve kind of picked up on is, hey we understand that payroll companies, DailyPay companies, like we get it, we understand kind of the business that you’re in. However, there is a whole emerging class of other types of companies who are using very similar sounding language as a payroll company or a DailyPay company to essentially offer a loan product to consumers.

Jason Lee:

And whenever you do things like that, obviously regulators want to poke around they want to sniff around to really understand what’s actually on here and frankly we institutionally and I personally don’t have a strong view on those models. Yeah. I don’t know if they’re right. I don’t know if they’re wrong. I’m sure they provide lots of benefit to consumers in certain circumstances. All I know is it’s, it’s very separate and not what we do. What we do for a living and what the DailyPay industry does is it makes, or enables rather an employee to control the timing of her pay. And that’s it, period, full stop. No payback. Never has to do anything. It’s literally just like payroll. And I know that model very well. I know that business very well.

Jason Lee:

And thankfully, it’s a business that obviously has received much of the imprimatur from the regulatory community. This other stuff that the DFS is looking into. I’m not a real expert in it. All I know is that they’ve taken issue with concepts of, hey, let me give money to a consumer quote in connection with their wages, but on payday, let me go get it back from them. And there’s some creative and some might say too clever by half a fee structure is out there. I’ve heard of monthly subscription fees. You pay a fee per week or every two weeks and you get to take as much money as you want.

Jason Lee:

I’ve heard about models where quote, there is no fee, but please do leave us a gratuity. I think all of those things is what the DFS is looking into. I’m not sure if it’s because they’re curious and want some type of intellectual inquiry or if they’re actually concerned that it’s a bit deceptive and misleading to consumers and to employees, we’re just going to have to see, and maybe, maybe you’ll invite me back on Michael to The Source and I can give an update when we hear some more.

Michael Baer:

Yeah. And I think you’ve said that you welcome this kind of investigation because any provider of access to early pay really should be supportive of this, as you’ve said. So, I think as this industry continues to evolve and change, what do you think that, what does it seem like regulators are saying about how to structure these products correctly? You touched on that a little bit, but what does this mean for people, businesses, who are evaluating what they should be looking at for DailyPay benefits?

Jason Lee:

Well, look, let me maybe make this really simple, every person who I’ve spoken to, whether it be regulators, policy makers, employers, consumer advocacy groups, employees. I mean, we and I am at the center of this dialogue and without fail every single person who we have spoken to has said the same thing. We want to come up with a way to solve this social issue. The fact that 80% of the working population is living paycheck to paycheck. That’s unacceptable in this day and age. And when we have technology that can truly democratize access to one’s earnings, you just can’t have that. That type of inequality should not exist in the era that we are in today. So everyone is in violent agreement on this point. In fact, Michael, I don’t know if you saw back at your Bloomberg days, but even the FED came out with something where they said, “Hey, we want to improve our system, our rails, and modernize them so that people can get paid quicker.”

Jason Lee:

So, even the FED, the federal reserve is looking into this because everyone wants to help. People want to pitch in, roll up their sleeves and figure out a way to solve this issue. By definition, if someone is living paycheck to paycheck, the best way to solve that issue is to reduce the time between paychecks and in fact, to give control back to the employee. So I think everyone’s in violent agreement that everyone wants to see this market emerge. On the flip side, the thing that I think is also coming out loud and clear is despite everyone’s good intentions, the execution is really important.

Jason Lee:

When I speak to CEOs and CFOs of very large fortune 100 companies, their commentary is identical. It is, “We want to solve this problem, but we do not want to offer anything that looks like a loan.” I mean, no debiting, no taking money back from the employee. The feedback has been remarkably consistent. And so I think there’s something there. I think the market has spoken. And thankfully this is one of those very special times where, what the market wants, I think regulators want to they want a safe way to be able to give people access to their pay without creating the boomerang obligation a few weeks later to have to pay it back.

Michael Baer:

And you’ve been dealing with making sure, and I think that’s what the regulators are looking at too, is making sure that this is transparent, that these operations don’t have any hidden tips or fees. If there isn’t any interest, there’s no wage discounting. You’ve said that these aren’t really high bars to meet. And that any program that doesn’t offer those really should be out of any kind of regulatory compliance. Am I right, Jason?

Jason Lee:

Michael, I can tell you’re quoting from the industry speech that I made back in your old Bloomberg days, when I made the industry speech to the American Apparel Association in the spring at their regulatory conference. But yes, you’re correct. The bar is not high here. I mean, just be sensible, do the right thing. Don’t call something, not a loan, if it is a loan. These are very basic tenants and bedrock principles that I think any sensible person, and any sensible operator can actually agree with. And so I tend to agree with you, Michael, which is the path here is, frankly, not that difficult, be sensible when you give money to someone, don’t ask for it back and it’s like pay. And so consequently, we have found that keeping it simple is probably the best way to do these things.

Michael Baer:

All right. Well, thank you so much, Jason, this has really been very illuminating. There were a couple of questions from the audience and we’d like to turn to them briefly. So if you could possibly address them, one of the… Here’s one here, if early wages aren’t being regulated, does that mean the entire industry is at risk? Wouldn’t it be good to have concrete regulation in this space? And I think you kind of answered that, but maybe try to briefly answer it again.

Jason Lee:

Well, I guess maybe the way I would think about that, Michael, is so maybe I can draw it, give you a personal example. So I live here in New York city and I don’t know where your listeners are. They’re probably scattered across the United States. I mean, I do know Michael that you’re a global phenomenon. So, who knows if folks are listening around the world here, but look, I live in New York City and if you’ve ever driven a car in New York City, what actually and you actually you drive your own car here in New York and you try to park a car. I don’t know if you’ve ever tried to parked a car, try to park a car, rather, in New York, what the actual street signs tell you and what the parking signs tell you is they actually tell you when you can’t park somewhere, they don’t tell you where you can park.

Jason Lee:

They only say where you can’t park. So, for example, the sign outside of my small apartment here in New York as I walked down the stairs, it says “No parking because of street cleaning Mondays and Thursdays between…” I think it’s seven and nine. So literally I have to move my car during that time. And on Mondays and Thursdays because I park on the street. And so but any other time, you can park there. Now to be clear, the signs do not say you can park here Saturday, Sunday, Monday from 9:00 PM to 7:00 AM, et cetera, et cetera. And I think that’s a little bit of how I would think about regulation and what I mean by that is this question from the listener said, “Well, isn’t it a problem if earned wages are not regulated?”

Jason Lee:

And the answer I would tell you is they are regulated. Meaning there are very clear rules that already say what you can’t do. Don’t debit, that’s a loan. Don’t charge interest that exceeds whatever the state relevant interest cap is, that’s illegal. Don’t deduct from payroll, that’s illegal in certain states. And so the rule set is actually out there already. And so it’s a bit of a fallacy to say, “Hey, this space is not regulated”, because there’s actually a very long list of rules that already exist in terms of work where you can’t park today. And so I think the key is you have to understand where you can’t park in order to understand where you can park. And so those rules are already out there and it’s a very simple exercise of laying out and laying down, laying out, excuse me, what you can’t do. In other words, the things I just went through and comparing that to whatever program you have.

Michael Baer:

I think I like your analogy there, Jason, and it brings up the idea that some actors out in the industry are maybe trying to park a truck in a car spot and really maybe try to take advantage of a spot there that they really don’t fit in.

Jason Lee:

Well, all of us know how frustrating that can be, especially if you’re trying to park there.

Michael Baer:

All right. Well, we have one last question here. What if a vendor integrates directly with employers, but utilizes consumer debiting for payback? Is that okay? That what their question is, and again, I think you kind of addressed this earlier, but…

Jason Lee:

Well, look, and to be clear as I’m sure there’s probably some disclaimer out there that says we’re not lawyers, but I think here you just be sensible. Just apply the common sense rule. And I’m just looking at what I can see here from the bleacher seats. It’s not a question of whether or not you’re integrated with the employer or the employee that really is of no import. When you look at what the consumer advocacy group said, they said this bill, which enables debiting, quote, actively harms borrowers, quote, authorizes a new type of payday loan quote is worse than no law at all and will harm consumers, both in California, and nationally. So I think what I would say is you’d be hard pressed to find a rule, or a piece of legislation that says, “Hey, if you are ABC company in XYZ state and you enable debiting in an earned wage program, you will go to jail.”

Jason Lee:

I don’t think you’re going to find that rule. But what I do think every corporation should think about is their own risk tolerance. There are some companies who are, frankly, very comfortable with taking risk and there are other companies who tend to play it a little bit more safely. They tend to have risks in their overall business. And so when it comes to HR related things, they don’t want to take risk. And so I think there’s no right or wrong answer here. It’s really just dependent on how much risk the company wants to take in terms of implementing their program.

Michael Baer:

Okay, well, that’s great. Thanks, Jason. And this provided a great basis, I think, for understanding what’s going on in this active and growing and evolving and changing industry that is really impacting the payroll space, the human resources space, and impacting employees lives everywhere. So, let’s tune in next month for another conversation on regulatory news and updates in the DailyPay space. For now, this is Michael Baer signing off from The Source. Have a great day.

Jason Lee:

Thanks Michael.

Speaker 1:

Thanks for listening to The Source brought to you by DailyPay. Join us again next month for up to date insight on the on demand pay industry. Keep your eye on your inbox for more information regarding featured guests and new topics.

Recorded on October 10, 2019

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