On February 11, the California DFPI issued an opinion letter in response to an EWA provider's request for a specific ruling from the DFPI about whether the company's EWA solution is subject to licensure under the California Financing Laws (CFL) and California Deferred Deposit Transaction Law (CDDTL). In response, the DFPI concluded that the provider does not originate or facilitate loans subject to the CFL or CDDTL, and that neither the provider nor its employer partners are subject to the CFL or CDDTL's licensing requirements.
DFPI relies upon two necessary elements in reaching its conclusion as to CFL and CDDTL applicability: (1) the funds come from the employer, not the provider, and those funds do not exceed the amount the employer owes a recipient; and (2) the fees charged do not suggest that the product evades California's lending laws.
- As to the first item, the payment to the employer satisfies part of an existing financial obligation from the employer to the employee, rather than the employee agreeing to repay their employer for the amount received.
- As to the second item, the DFPI notes that the typical user receives $184 for each advance, and the maximum fee for each advance is $5. This fee is substantially lower than the 5% administrative fee that a licensee could charge under Cal. Fin. Code § 22305. Thus, cost of a EWA does not suggest evasion of the CFL.
Putting In Into Practice: EWA providers operating in California should note that this provider's model was approved based upon the specific facts presented to the DFPI. Other providers with seemingly similar models should take the opportunity to discern the differences between their models and the approved model here in order avoid future inquiries from the California regulator (we have discussed regulatory responses to EWA solutions in previous Consumer Finance and FinTech blog posts here and here).
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