A group of 96 organizations and individuals, who describe themselves as consisting of “consumer, labor, civil rights, legal services, faith, community and financial organizations and academics,” have sent a letter to the CFPB urging the Bureau to regulate fee-based earned wage access (EWA) products as credit subject to the Truth in Lending Act. EWA products provide employees with access to earned but as yet unpaid wages. Such products typically involve an EWA provider that enables employees to request a certain amount of accrued wages, disburses the requested amounts to employees prior to payday, and later recoups the funds through payroll deduction or bank account debits on the subsequent payday.
The letter takes aim at the Bureau’s November 2020 advisory opinion dealing with EWA products and its December 2020 approval order issued in connection with Payactiv’s EWA program. The advisory opinion addressed whether an EWA program with the characteristics set forth in the opinion was covered by Regulation Z. Such characteristics included the absence of any requirement by the provider for an employee to pay any charges or fees in connection with the transactions associated with the EWA program and no assessment by the provider of the credit risk of individual employees.
The approval order, which was issued through the Bureau’s Compliance Assistance Sandbox Policy, confirmed that Payactiv’s EWA program described in the order did not involve the offering or extension of “credit” as defined by section 1026.2(a)(14) of Regulation Z, and therefore, Payactiv had a safe harbor from liability under TILA and Regulation Z in connection with the specified EWA program. In concluding that Payactiv did not offer or extend credit under the EWA program, the Bureau noted that various features often found in credit transactions were absent from Payactiv’s program. For example, Payactiv had no rights against the employee if a payroll deduction was insufficient to cover the amount of already earned wages transferred to an employee and did not charge any interest or other fees against a transfer of earned wages, ensuring that the amount PayActiv is entitled to recover did not increase over time.
In their letter to the Bureau, the organizations and academics assert that “[r]egardless of how they are structured, the essence of virtually all [EWA] programs is that a third party advances funds to the consumer before the consumer’s regular payday and is repaid later in some fashion out of the paycheck. That is a loan. Methods to verify that the consumer has earned wages coming to them are simply a form underwriting or security.” They claim that viewing EWA products as something other than “credit” leads to evasion of federal credit laws such as TILA, and of state laws, particularly state usury laws. They also raise concerns about the potential impact of the Bureau’s reasoning in the advisory opinion and approval order on fair lending laws, claiming that such reasoning “could be used in an attempt to weaken the scope of the ECOA and its protections against discrimination against communities of color and other protected classes.”
In addition to urging the Bureau to treat fee-based EWA programs as credit covered by TILA, they urge the Bureau to rescind the advisory opinion or revise it to focus only on whether providers of free EWA programs are “creditors’ under TILA, revisit and potentially revoke Payactiv’s approval order (which they claim Payactiv is “misusing”), and supervise fee-based EWA providers under the CFPB’s authority to supervise payday lenders.
Two of the signatories to the letter, the National Consumer Law Center and the Center for Responsible Lending, sent the Bureau a separate 46-page letter urging the Bureau to take similar actions but also providing a detailed critique of the advisory opinion and approval order. The letter includes a discussion of the two organizations’ claim that the Bureau’s TILA analysis “could provide arguments for other emerging products that claim not to be credit or covered by credit laws [including] income share agreements, PACE loans, share appreciation home financing, and some online point-of-sale retail financing.”
In concluding in the Advisory Opinion that “Covered EWA Transactions” are not “credit” under TILA, the CFPB relied on Comment 2(a)(14)-1(v), which excludes from credit “[b]orrowing against the accrued cash value of an insurance policy or a pension account if there is no independent obligation to repay.” While we agree with NCLC and CRL that the Opinion includes several nonessential characteristics of “Covered EWA Transactions” in its “credit” analysis, we disagree with their objections to the crux of the Opinion, which is that “a Covered EWA Program facilitates employees’ access to wages they have already earned.” NCLC and CRL attempt to undercut the CFPB’s analysis by asserting that Covered EWA are analogous to tax refund anticipation loans (RALs) and home equity loans (HELs) (both of which are “credit” under TILA), in which “people borrow against accrued value, essentially their own money.”
NCLC and CRL diminish the fact that, unlike Covered EWA Transactions, borrowers have an independent obligation to repay these products. This is a significant distinction in our view. When there is no independent obligation to repay, as with a Covered EWA Transaction, then repayment is only from funds that the consumer has already earned, so no “debt” can be created. We hope the CFPB takes a close look at the merits of the consumer groups’ arguments and bases any future activity related to EWA Programs – and any other emerging products – on stronger legal footing.