In a letter to three representatives of consumer advocacy groups, CFPB Acting General Counsel Seth Frotman indicated that due to “repeated reports of confusion” caused by the CFPB’s November 2020 advisory opinion (AO) on earned wage access (EWA) programs, he plans to recommend to Director Chopra “that the CFPB consider how to provide greater clarity on these types of issues.”

The AO addressed whether an EWA program with the characteristics set forth in the AO 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 AO set forth the Bureau’s legal analysis on which it based its conclusion that the EWA program did not involve the offering or extension of “credit” within the scope of Regulation Z.  In the AO, the CFPB observed that there may be EWA programs with nominal processing fees that nonetheless do not involve the offering or extension of “credit” under Regulation Z and advised that providers of such programs can request clarification about a specific fee structure.

Mr. Frotman’s letter responds to a letter sent to him by the representatives regarding proposed New Jersey legislation that would provide that certain EWA products would not be treated as loans under New Jersey law.  As described in his letter, the bill would allow EWA companies to operate in New Jersey, and charge fees/and or “tips” for their products, without being subject to the state’s 30% usury cap and other protections that apply to consumer credit transactions.  Mr. Frotman stated that the representatives indicated in their letter that proponents of the bill had cited the AO as justification for its passage.  He also referenced a letter sent to Director Chopra in October 2021 by a group of 96 organizations and individuals, who described themselves as consisting of “consumer, labor, civil rights, legal services, faith, community and financial organizations and academics” and urged the Bureau to regulate fee-based EWA products as credit subject to the Truth in Lending Act (TILA).  Mr. Frotman stated that both that letter and the representatives’ letter “make evident that the advisory opinion has caused significant confusion in the marketplace.”

As further described in Mr. Frotman’s letter, the New Jersey bill “would allow a provider to charge a consumer for earned income access services two times in any week” and “has no limit…on products with ‘optional’ fees or ‘tips’.”  Mr. Frotman indicated that, based on these features alone, the AO provides no support for the bill because the AO on its face, was limited to circumstances where the employee was not required to pay any charges or fees for the EWA product.

While acknowledging that the AO had left open the possibility that an EWA product with nominal processing fees might not be “credit” under Regulation Z, Mr. Frotman suggested that possibility is remote.  More specifically, he noted that the CFPB had expressly limited the AO’s application to EWA programs meeting all of the characteristics set forth in the AO and stated that “products that include the payment of any fee, voluntary or not, are excluded from the scope of the advisory opinion and may well be TILA credit.”  Mr. Frotman also noted that the AO does not speak to whether EWA products would be “credit” under federal laws other than the TILA, such as the CFPA or the ECOA, or under state law.

We believe that if Director Chopra agrees with Mr. Frotman that more clarity is needed, the CFPB will use the “clarification” to attempt to maximize the reach of consumer financial protection laws to EWAs and other products that may be on the periphery of what may be considered credit products.