The Consumer Financial Protection Bureau is once again reversing course on whether earned wage access products are subject to the Truth in Lending Act, with the bureau planning to issue a new advisory opinion on Tuesday declaring many such products not to be “credit” and exempt from TILA’s requirements.
Earned wage access, or EWA, products allow an employee access to his or her earned wages prior to the employee’s payday, typically without requiring any fee or other payment from the employee. In 2020, the CFPB issued an advisory opinion that concluded that EWA products that do not require or allow any payment from the employee are not “credit” under Regulation Z, which implements TILA. That opinion was rescinded during the Biden administration, with the CFPB’s leadership claiming that it created regulatory uncertainty.
In a new advisory opinion to be issued Tuesday, the bureau declares that many EWA products are exempt from Regulation Z if they meet certain requirements. Among other things, covered EWA transactions must not exceed the accrued cash value of the wages, the EWA provider must have no recourse against the employee if the employee’s actual pay is insufficient to cover the EWA advance, and the provider must not directly or indirectly assess the credit risk of the recipient.
The CFPB also stressed that the advisory opinion does not state, and nothing in it should be understood to state, that EWA products that do not meet the above criteria are credit under Regulation Z. The bureau continues to seek stakeholder feedback on whether it should issue additional guidance regarding other EWA products.
The American Bankers Association has long asserted that EWA products are not credit because the employee does not incur a debt, and that classifying EWA products as credit will discourage banks from offering the product, limiting access to a convenient and potentially free source of small-dollar, short-term liquidity.
