Small Dollar Lending

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On February 23, the Consumer Financial Protection Bureau (CFPB or Bureau) released an order, dated November 30, 2023, establishing supervisory authority over installment lender World Acceptance Corp. The CFPB found that it had reasonable cause to determine that the conduct of World Acceptance “poses risks to consumers with regard to the offering or provision of consumer financial products or services,” and, therefore, the agency could exercise its supervisory powers over the company under the Consumer Financial Protection Act (CFPA). Notably, this is the CFPB’s first supervisory designation order in a contested matter, and, as permitted by the Bureau’s amended rules governing this process, the Bureau chose to publicize its decision (and issue a press release about it).

In representing fintech companies and other lenders, we increasingly confront claims against debt buyers or entities with bank partner relationships brought under Pennsylvania’s Consumer Discount Company Act (CDCA) and the Loan Interest and Protection Law (LIPL). This article highlights a recent case addressing the CDCA decided by the United States Court of Appeals for the Third Circuit.

Recently, Lead Bank and its loan servicer Hyphen, LLC, an online lending platform operating Helix Financial, filed a motion to dismiss a purported class action alleging violations of the Georgia Installment Loan Act (GILA) and Georgia racketeering law arising out of a consumer installment or “payday loan.” Specifically, the plaintiff alleged that the loan agreement between herself and Lead Bank was “nothing more than a façade, and a temporary one at that” in an attempt to evade Georgia’s restrictions on payday lending.

Recently, Arizona, Kentucky, and Hawaii have jumped on the bandwagon to regulate earned wage access (EWA) products and services. Arizona’s proposed bill makes clear that EWA services are not considered to be loans or money transmissions, and voluntary tips or gratuities are not finance charges. It further requires EWA providers to be licensed, provide mandatory disclosures to consumers, and to submit an annual report detailing yearly revenue from EWA products. Kentucky’s legislation also makes clear that EWA services are not consumer loans or deferred deposit transactions, and regulates any consideration or gratuity requested as part of the transaction. Hawaii’s bill amends the interest and usury law by defining “debt,” “finance charge,” and “credit” to include EWA products, and requires “annual percentage rate” to be calculated pursuant to the Truth in Lending Act (TILA). Each proposal is discussed below.

We are pleased to share our annual review of regulatory and legal developments in the consumer financial services industry. With active federal and state legislatures, consumer financial services providers faced a challenging 2023. Courts across the country issued rulings that will have immediate and lasting impacts on the industry. Our team of more than 140 professionals has prepared this concise, yet thorough analysis of the most important issues and trends throughout our industry. We not only examined what happened in 2023, but also what to expect — and how to prepare — for the months ahead.

On January 9, a group of five bi-partisan South Carolina Senators introduced Bill 910, which would, among other things, require persons (non-bank lenders) providing “consumer installment loans” or “deferred presentment loans” to conduct ability to repay (ATR) analysis. Insured state and federally chartered banks and credit unions are exempt from the provisions of the proposed law, which is currently before the Committee on Labor, Commerce, and Industry for review.

On January 9, SB 1146, entitled the Earned Wage Access Services Act, was introduced into the Florida Senate. The bill would require earned wage access (EWA) providers to register with the Florida Financial Services Commission. The bill also requires EWA providers to develop procedures for dealing with consumer questions and complaints, requires consumer notifications, and requires providers to offer at least one reasonable option for consumers to get EWA proceeds at no cost. Like Nevada, discussed here, the law specifies that EWA products are not loans (including not being subject to the Consumer Finance Act), nor is such activity considered money transmission under Florida law. SB 1146 has been referred to the banking and insurance committee for consideration. If passed, the law would take effect on October 1, 2024.

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.”

In March 2023, the California Department of Financial Protection and Innovation (DFPI) proposed new regulations under the California Financing Law that would update the definition of loan to include what it dubs as “income-based advances” also known as earned wage access (EWA) products, except for those offered by employers. After considering written comments to the proposed regulations, on November 6, the DFPI issued modifications to the proposed regulations and announced comments on the modifications would be accepted until November 27. Under the modifications, direct-to-consumer (i.e., non-employer offered) EWA products would still be defined as loans.