CFPB Advisory Opinion on Earned Wage AccessDecember 1, 2020
CFPB issued an advisory opinion on Earned Wage Access (EWA) on Monday afternoon. We’ve written about earned wage access products before as well as state legislative initiatives to regulate them. The new federal guidance primarily addresses the question of if/when an EWA program is covered by the Truth in Lending Act (TILA) and Regulation Z. It concludes that EWA programs that meet certain requirements are not an extension of credit and are not subject to TILA or Reg. Z.
The advisory opinion builds upon commentary included in the Payday Lending regulations issued way back in 2017. That rule suggested that an EWA product that allows an employee to draw accrued wages ahead of a scheduled payday, recoups the advance through payroll deduction and does not provide recourse against the employee might not be a form of lending. The advisory opinion expands on that analysis and lays out a detailed set of criteria for an EWA program that is not an extension of credit for Reg. Z purposes. Oddly enough, CFPB calls such a service a “Covered EWA Program” even though the whole point of the opinion is that the program is not covered by Reg. Z.
The commentary to Reg. Z notes that borrowing against the “accrued cash value of an insurance policy or a pension account if there is no independent obligation to repay” is “not considered credit for purposes of the regulation.” Credit is not being extended because the consumer is using his or her own money. CFPB reasons that a wage advance which accesses funds already earned by the employee, is recovered through payroll deduction and is not subject to an independent obligation to repay would similarly not be an extension of credit for Reg. Z purposes.
Under CFPB’s advisory opinion, an EWA program is not an extension of credit and not subject to Reg. Z if it meets all of the following criteria:
The provider contracts with the employer.
The advance does not exceed the amount of earned wages verified by the employer.
The employee pays no fee, voluntary or otherwise, for the service. The advance must be sent to account of the employee’s choice. If the account receiving the advance is a prepaid account offered by the provider, then certain additional fee restrictions apply to the prepaid account.
Provider recovers the advance only through payroll deduction from the next paycheck. One additional deduction may be attempted if the first deduction fails for technical reasons.
If the advance can’t be collected through the payroll deduction, the provider can’t otherwise collect from the employee.
The provider must make certain warranties to employee, including that there will be no fees, no recourse against the employee, and no debt collection activities.
The provider may not conduct a credit assessment or credit reporting.
This list of criteria…