CFPB Summary Truth in Lending Application to Earned Wage Access Advances

CFPB Summary re: Truth in Lending Application to Earned Wage Access Advances
12 CFR Part 1026

The Consumer Financial Protection Bureau (CFPB) is charged with promoting competition and innovation in consumer financial products/services.  The CFPB is proposing this interpretive rule to help market participants determine when certain existing requirements under Federal law are triggered.  The proposed interpretive rule would also address certain costs that are charged in substantial connection with extensions of such credit, such as expedited delivery fees and costs marketed as “tips.”

Comments must be received by August 30, 2024.  The proposal can be found here.

Summary

The CFPB issued this proposed interpretive to clarify a 2020 advisory opinion that was silent about whether earned waged products that do not meet all of the conditions specified in that advisory would be considered credit under TILA and Regulation Z.  The CFPB is proposing to replace the 2020 advisory opinion with the new interpretive rule.

Application

This interpretative rule applies to products that involve both (i) the provision of funds to the consumer in an amount that is based, by estimate or otherwise, on the wages that the consumer has accrued in a given pay cycle and (ii) repayment to a third party provider via some automatic means, like a scheduled payroll deduction or preauthorized account debit at or after the end of the pay cycle.  This rule only addresses the application of certain Regulation Z and TILA provisions; it does not address the application of any other laws that concern “credit.”

Earned wage products provide consumers with the right to defer payment of debt or to incur debt and defer its payment” because they incur a debt when they obtain money with an obligation to repay via an authorization to debit a bank account or using one or more payroll deductions.

This interpretative rule replaces the advisory opinion the CFPB issued in November 2020, which stated that some earned wage products are not “credit” because they would not constitute a “debt.” The 2020 advisory opinion—narrowly focused on one unique type of product—did not consider the full scope of available precedent and definitions in common legal usage when reaching its narrow conclusion.

In addition, the obligations of Regulation Z apply to any credit provider that regularly offers or extends consumers credit subject to a finance charge.  The finance charge is “the cost of consumer credit as a dollar amount.” Unless specifically excluded by the regulation, this includes “any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit.”  Consumers may incur two types of costs (tips and expedited funds delivery fees) in connection with earned wage credit.

With regards to expedited funds delivery fees, a consumer pays for faster access to credit, the associated fee is immediately and directly connected to the particular extension of credit. Likewise, in other instances, providers may solicit consumers for tips, gratuities, donations, voluntary contributions, etc. in connection with the extension of earned wage credit.

When these fees are substantially connected to the extension of credit, they are considered to be a part of the cost of the credit and should be disclosed as part of the finance charge.