The Consumer Financial Protection Bureau today proposed an interpretive rule declaring that paycheck advance, including earned wage access, products are consumer loans subject to the Truth in Lending Act and Regulation Z. The bureau also published a related report on employer-sponsored paycheck advance loans that alleged that the “typical” loan carries an annual percentage rate of more than 100%. The bureau set an Aug. 30 deadline for comments on the proposed interpretive rule.
According to the CFPB, the interpretive rule states that consumers who use paycheck advance or “earned wage” products incur a “debt” and therefore the funds advanced to the consumer are “credit.” The provider must calculate and disclose the finance charge associated with the advanced funds, including any “tips” the consumer chooses to leave for the provider and expedited funds delivery fees, as well as comply with other provisions of Regulation Z. The rule replaces a 2020 advisory opinion that addressed employer-sponsored EWA products where the consumer does not pay any required or voluntary fee to the provider.
As for the report on employer-sponsored advances, the CFPB estimated that the number of transactions processed by providers grew by more than 90% from 2021 to 2022, with more than 7 million workers accessing approximately $22 billion in 2022. Roughly 90% of workers paid at least one earned wage product-related fee out of the companies surveyed, according to the bureau. The APR for a typical employer-partnered earned wage product transaction was 109.5%, based on the CFPB sample.
