The California Department of Financial Protection and Innovation (DFPI) has once again modified its proposed rulemaking on earned wage access (EWA) products. As discussed here, this spring the Office of Administrative Law (OAL) rejected the proposed regulations for failure to comply with the clarity standard of the Administrative Procedure Act (APA) and failure to follow the required APA procedures. These new modifications attempt to address those concerns.

As discussed here, in March 2023, the DFPI proposed new regulations under the California Financing Law to classify “income-based advances” or EWA products as loans, except those offered directly by employers. The proposal also included registration requirements for providers of such products and imposed regulations on debt settlement companies and education financing providers.

The most recent modifications to the proposed rulemaking include:

  • Second Review of Incomplete Registration Application: If an applicant submits additional information within 60 days after receiving a notice of deficiency, the Commissioner must respond within 30 days to either approve the application or identify incomplete parts and state that the application will be considered abandoned if not completed within 60 days.
  • Third Review of Incomplete Application: Similar to the second review, but if the applicant fails to complete the application within 60 days after the third notice, the application will be deemed abandoned.
  • Annual Registration Fee: Registrants must pay an annual registration fee based on their gross income from California residents in the year immediately preceding the year of the assessment. The fee will be assessed by November 30 each year and must be paid by December 31. Failure to pay may result in summary revocation of the registration.
  • Surrender of Registration: Procedures for surrendering a registration have been clarified, including timelines and conditions under which an application to surrender may be disapproved.

The modified proposed regulations are not yet effective and will require approval by the OAL and filing with the Secretary of State. The DFPI has opened a public comment period on the changes that will close on July 24, 2024.

Our Take:

The DFPI’s determination to regulate income-based advances, including many EWA products that have no obligation to repay continues. These regulations are only one step in the DFPI’s process of increasing oversight of both EWA providers and other non-traditional finance companies that operate outside the California Finance Law. Providers of these products should closely review the DFPI’s rulemaking as to the impact on their products and consider whether a comment letter is appropriate before the deadline.