On December 22, Montana Attorney General Austin Knudsen issued an opinion on whether Earned Wage Access (EWA) products constitute either “consumer loans” under Montana Code § 32-5-102(2)(a) or “deferred deposit loans” under § 31-1-703. In short, AG Knudsen’s opinion was no, “so long as the EWA product is fully non-recourse, does not condition an income-based advance on any interest, fees, or other consideration or expenses, and limits income-based advances to income already earned by the consumer.”

To reach his conclusion, AG Knudsen relied on the statutory text. While the Montana Consumer Loan Act (MCLA) does not define “loan” or “credit,” elsewhere, Montana law defines a “loan of money” as “a contract by which a person delivers a sum of money to another person and the other person agrees to return at a future time a sum equivalent to that which the other person borrowed.” A loan, therefore, includes a right to repayment and a presumption of interest or other fees as a condition of the loan. The Attorney General also looked at other federal authorities for guidance. For example, the Consumer Financial Protection Bureau specifically exempted EWA advances from its Payday Lending Rule stating, EWA providers “are providing products or services that allow consumers to draw on wages they have earned but not yet been paid. Some of these companies are providing advances of funds and are doing so without charging any fees or finance charges, for instance by relying on voluntary tips.” AG Knudsen also noted that the Federal Reserve Board of Governors has concluded that credit is not extended when a consumer borrows against the accrued cash value of an insurance policy.

AG Knudsen thus concluded that EWA products do not meet the definition of loan under the MCLA because: EWA providers do not possess a right to repayment for income-based advances, an EWA product grants consumers access to income already earned, and an EWA product does not condition the advance on any “interest, fees, other consideration, or expense.” For these same reasons, the Attorney General concluded that EWA products do not meet the definition of deferred deposit loans. Deferred deposit loans being arrangements in which a person accepts a check and agrees to hold it for a period of days before deposit or a person accepts written authorization from a consumer to electronically deduct from their account on a specific date.

In conclusion, AG Knudsen stated, the MCLA’s “purpose is to ‘protect consumers who enter into short-term, high-rate loans with lenders from abuses that occur in the credit marketplace when the lenders are unregulated.’ No-cost, fully non-recourse EWA products provide an alternative to the types of loans the Act is designed to regulate. Fully non-recourse EWA products avoid many of the abuses in the payday loan marketplace such as high interest rates, debt collection practices, credit reporting, and extensive sequences of reborrowing.”