In an earlier article, we provided an overview of the Consumer Financial Protection Bureau's ("CFPB") earned wage access ("EWA") advisory opinion. In the opinion, the CFPB identified seven requirements for a "Covered EWA Program," i.e., an EWA program that would "not involve the offering or extension of 'credit'" under the Truth In Lending Act ("TILA") and its Regulation Z. To remind our readers, these requirements include the following:
- (i) employer-based EWA programs – the EWA provider contracts with the employee's employer to make EWA transactions available;
- (ii) employer-verified wages – the employee's early access to wages does not exceed the accrued cash value of the wages actually earned up to the time of the transaction, as determined by information provided by the employer;
- (iii) fee-free model – the employee is not charged for accessing EWA funds (although the CFPB signaled that "nominal processing fees" may be permissible — more on that below);
- (iv) employer-based payroll deductions – the EWA provider recovers EWA funds only through an employer-facilitated payroll deduction from the employee's next paycheck, subject to exceptions only where an "administrative or technical error" prevented full recovery;
- (v) no legal/contractual claims – the EWA provider retains no legal or contractual claims against the employee for a failed or partial payroll deduction that is not due to an "administrative or technical error";
- (vi) no credit assessment or reporting – the EWA provider does not directly or indirectly assess the credit risk of the employee or report on the employee's credit; and
- (vii) specific EWA disclosures – the EWA provider makes certain conspicuous disclosures and commitments to the employee before providing any EWA funds.
Of all the requirements for a "Covered EWA Program," the one that may raise the most legal and practical issues is the prohibition on charging the employee for the EWA service.
Legally, the question of whether a financial services provider charges for a product or service is not part of the definition of "credit" in Regulation Z. As the Advisory Opinion notes, "credit" simply means "the right to defer payment of debt or to incur debt and defer its payment." 12 C.F.R. § 1026.2(a)(14). Regulation Z's official commentary goes on to offer many examples of products and services that do not constitute credit, and no example turns on whether the consumer is assessed a fee. 12 C.F.R. Part 1026, Cmt. 2(a)(14)-1. In other words, if a financial product or service is not "credit" in the first place, it does not become "credit" if the provider charges for it. An ATM withdrawal, for example, does not become a "credit" transaction simply because the customer is assessed an ATM fee. For a person who does offer "credit," a very important question under Regulation Z is whether any "finance charge" is assessed on that credit,1 but that question is not asked if the offering is something other than credit.
Practically, an EWA provider will need to paid for its service somehow or the service presumably will not be offered. While a provider apparently could offer a "Covered EWA Program" if it is paid only by the employer, the advisory opinion does offer a narrow alternative by suggesting that "nominal processing fees" may be appropriate. In particular, the CFPB suggests that providers "may request clarification from the Bureau about a specific fee structure by, for example, applying for an Approval under" the agency's Compliance Assistance Sandbox Policy. It is not clear how much good a "clarification" like that will do unless the CFPB is willing to revisit its view that fees are relevant to whether an EWA transaction is "credit."
1 See 12 C.F.R. § 1026.2(a)(17) (definition of "creditor"). Though there are other requirements, in general terms a "creditor" under Regulation Z is a person who offers "credit" and assesses a "finance charge." Regulation Z generally only regulates "creditors," not every person who offers "credit."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.