Adam Kovacevich is the founder and CEO of Chamber of Progress, a technology industry coalition, and previously led public policy at Google and the bike-sharing company Lime.

Nearly a decade after Democrats launched a campaign against payday lenders, the effectiveness of curbing predatory lending has become evident. FromCaliforniatoIllinois, payday lending activity has significantly decreased. Democrats should be proud of the Consumer Financial Protection Bureau's (CFPB) work in protecting consumers from deceptive products that are high-cost and debt traps.

However, the CFPB may now reverse this progress by targeting the popular alternative to payday loans—earned wage access (EWA) apps. The CFPB's plan to reclassify EWA as loans could backfire, pushing users back into the payday lending industry—a major setback for the CFPB's consumer protection mission.

EWA apps work by providing workers with small, short-term advances between paydays, enabling them to pay bills and meet daily needs using wages they have already earned. Unlike credit or loans, EWA is non-recourse, requires no credit checks or underwriting, and does not charge fees based on creditworthiness.

Typically, EWA apps do not charge interest, late fees, or penalties, nor do they affect users' credit scores. Instead, these products often rely on voluntary tips from users and fees for expedited wage transfers.

Unlike payday loans (which are not tied to earned wages), EWA only allows users to access a small portion of their next paycheck in advance—making it difficult for users to fall into the debt cycles that payday loans often cause.

EWA tools have existed for over a decade, but usage surged during the pandemic. More workers are turning to EWA for financial flexibility, especially amid economic uncertainty and rising prices. Even higher-income earners face financial emergencies, and EWA offers a safer alternative without the high costs of predatory lending.

Now, the CFPB wants to apply a 1968 law to EWA tools, effectively classifying EWA as wage loans—placing them in the same regulatory category as the predatory lenders EWA aims to replace. The CFPB's rationale: EWA products offer users the option to tip or pay extra fees for faster access to funds.

Imagine applying the same logic to the entire suite of fintech apps consumers use today, including payment apps like Venmo or CashApp. Most people consider Venmo a free platform—even though Venmo charges for certain premium services, such as expedited bank account deposits.

Under the CFPB's logic, Venmo's expedited deposit fee should be displayed as an annualized APR rate like a credit card. This would confuse most people—and would inevitably drive some users away from Venmo, all based on an irrelevant metric.

Without Venmo, people might revert to less secure payment methods, such as cash, which is harder to dispute or get refunds for in fraudulent transactions. This is the risk of imposing incompatible regulations on responsible fintech tools like EWA apps.

If the CFPB succeeds in misapplying outdated, irrelevant regulations to EWA services, the agency could ultimately push consumers toward more predatory options like payday loans.

A better regulatory model can be found in Wisconsin and South Carolina, which recently passed EWA regulations. These states require EWA providers to obtain state licenses and undergo regular inspections by regulators. EWA apps must offer a free service tier and must not penalize users who choose not to tip.

In contrast, the CFPB's approach could harm wage earners already under inflationary pressure the most. Rather than protecting consumers, the CFPB's stance may push them toward less safe, more costly financial products.