2 December 20203 minute read

CFPB says certain earned wage advance programs are not "debt" for purposes of TILA

On November 30, 2020, the Consumer Financial Protection Bureau released its final Advisory Opinions Policy “to establish procedures to facilitate the submission by interested parties of requests that the Bureau issue advisory opinions and the manner in which the Bureau will evaluate and respond to such requests.”

Recognizing the growing demand and utilization of earned wage advance programs, on the same day the Bureau issued an earned wage access (EWA) advisory opinion providing guidance on application of the Truth in Lending Act (TILA) and its implementing Regulation Z to certain earned wage programs. In essence, the EWA advisory opinion outlines what is tantamount to a “safe harbor” for certain earned wage advance programs, referred to as covered EWA programs, as not involving debt and not implicating TILA or Regulation Z. Importantly, the EWA advisory opinion does not conclude that all other earned wage advance programs are subject to TILA and Regulation Z, but it confirms covered EWA programs are not.

A covered EWA program must meet all of the following characteristics:

  • The party offering the program (ie, the provider), presumably different from the employer, must contract with the employer.
  • Funds advanced to the employee may not exceed the employee’s accrued cash value of wages earned up to the date of the transaction. This means that a covered EWA program cannot function like a payday loan whereby employees may draw upon expected but unearned compensation. Under a covered EWA program, the provider must ascertain an employee’s accrued cash value of wages using information obtained from the employer – not the employee.
  • The employee is not charged any fees – with the potential exception of “nominal processing fees,” subject to independent confirmation from the Bureau – for the advance transaction. The EWA advisory opinion further discusses potential ways fees may inadvertently or involuntarily arise in a product offering, including fees for delivery of funds when advances are loaded to a pay card, offered by the provider or otherwise.
  • The provider is repaid for advance “only through an employer-facilitated payroll deduction from the employee’s next paycheck” (emphasis added), and with no more than one additional attempted to obtain the funds if the first attempt fails.
  • Further to the prior point, the provider cannot have recourse, direct or indirect, to employees for payment.
  • The provider may not assess the creditworthiness of employees when offering the advance transaction, including through obtaining or reviewing an employee credit report or credit score.

Many of the foregoing product terms and features must be clearly and conspicuously disclosed to employees before executing the transaction in the form of warrants from the provider.

Requirements to structure an earned wage advance program as a covered EWA program are fairly well defined, and one that meets those criteria can comfortably conclude the provider is not a creditor under TILA and not required to provide the detailed – and potentially confusing as it relates to earned wage advances – employee disclosures. Importantly, the EWA advisory opinion does not prohibit other earned wage advance programs that are not covered EWA programs. In fact, it does not even conclude such other programs are subject to TILA and Reg Z. Instead, it provides a safe harbor from TILA disclosure requirements for a finite set of programs that meet the stringent criterion summarized above and described more fully in the EWA advisory opinion.

Please contact the author for more detail or additional information.

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