As part of a flurry of last minute regulatory activity by the Biden administration’s Consumer Financial Protection Bureau (CFPB or Bureau), on January 15, the CFPB published an advisory opinion in the Federal Register rescinding a previous advisory opinion which the Bureau issued during the first Trump administration in November 2020. The 2020 advisory opinion had described how a specific type of “earned wage” product did not constitute the offering or extension of “credit” under the Truth in Lending Act (TILA) and Regulation Z. The new advisory opinion is effective immediately.
The CFPB’s 2020 advisory opinion had distinguished between two models of earned wage products: employer-partnered and direct-to-consumer. Employer-partnered products involve agreements between providers and employers, with funds recovered through payroll deductions. Direct-to-consumer products, on the other hand, provide funds directly to employees, often recovered through automated bank account withdrawals. The 2020 opinion explained that an earned wage product is not TILA or Regulation Z credit if it meets all of several identified conditions, including: providing the consumer with no more than the amount of accrued wages earned; provision by a third party fully integrated with the employer; no consumer payment beyond recovery of paid amounts via a payroll deduction from the next paycheck, and no other recourse or collection activity of any kind; and no underwriting or credit reporting. The 2020 opinion was silent about whether earned wage products that do not meet all of these conditions were credit.
In July 2024, the CFPB proposed an interpretive rule on this topic and sought public comment. The CFPB’s January 15 publication notes that seeking public comment was “voluntary” and that the comment period closed on August 30, 2024, suggesting the Bureau views the interpretation as effective without further action.
Reasons for Rescission:
The CFPB identified two primary reasons for rescinding the 2020 advisory opinion:
- Flawed Legal Analysis: The CFPB found that its legal analysis was significantly flawed. According to the Bureau, it did not adequately consider the meaning of “debt” under state law or other relevant legal bodies. Additionally, the CFPB stated that the opinion’s inference that consumers do not incur liability when using certain earned wage products was insufficiently justified. The opinion also apparently failed to consider all relevant factors in determining what constitutes “credit” under TILA and Regulation Z.
- Regulatory Uncertainty: The CFPB found that its advisory opinion created substantial regulatory uncertainty. According to the Bureau, its narrow scope left many stakeholders speculating about the CFPB’s stance on various earned wage products. In the Bureau’s view, the opinion was also misinterpreted and cited for legal conclusions it did not reach.
Now that a new administration has begun, we will be carefully monitoring EWA developments from the CFPB. It currently remains unclear what, if any, actions the CFPB will take regarding the transactions and related interpretations.