NEWS: In a letter to the CFPB yesterday, The League expressed its support for a proposed interpretive rule that would subject “earned wage access” (EWA) services to Truth in Lending & Reg. Z. It would also treat most EWA fees as “finance charges” that must be disclosed to consumers in advance.
Fintech-powered EWA apps give workers early access to a portion of the wages that they have earned before payday. EWA services are not free, of course. Workers who use them essentially must pay to access their own wages. Two common charges that consumers may incur for using EWAs are “tips” (and other similarly labeled payments, like “gratuities”) and expedited funds delivery fees.
Our letter stressed the importance of workers getting clear disclosures of costs and terms before they use an EWA service:
As member-owned, not-for-profit financial cooperatives, Wisconsin credit unions pride themselves on providing responsible financial tools to help consumers. We are dismayed to see the increasing popularity of EWA services, which often involve extending credit to workers without adequately disclosing to them the costs and terms in advance. In fact, we believe that many EWA services are no different than other types of predatory payday advance loans. Lenders take advantage of desperate workers, many of whom live paycheck-to-paycheck, when they need money quickly to cover unforeseen expenses or financial emergencies. EWA providers can charge excessive amounts of “junk” fees, which they are not currently required to disclose in advance by federal law. This proposal seeks to remedy that oversight, and we applaud the CFPB for taking this step. The proposal would not disadvantage EWA providers; it would simply “level the playing field,” making it easier for U.S. workers to compare alternatives when they find themselves in need of credit.
The proposed rule would reverse and replace a 2020 CFPB advisory opinion, which concluded that a particular type of EWA product did not involve an extension of “credit” and thus was not subject to TILA and Reg. Z – if that product met certain conditions. According to the CFPB, that 2020 opinion only addressed free, employer-based EWA products, a narrow subset that the Bureau said are “not common in the real market.” That advisory opinion caused confusion in the EWA marketplace.
The new proposal would take the opposite approach. It would broadly apply TILA and Reg. Z to any product that involves both 1) “the provision of funds to the consumer in an amount that is based, by estimate or otherwise, on the wages that the consumer has accrued in a given pay cycle” and 2) “repayment to the third-party provider via some automatic means, like a scheduled payroll deduction or a preauthorized account debit, at or after the end of the pay cycle.”
“The CFPB is right to regulate EWA services,” we concluded. “The CFPB’s legal analysis more than adequately justifies subjecting EWA services to TILA and Reg. Z, as well as treating expedited delivery fees and so-called ‘tips’ as finance charges in most cases. We call on the CFPB to finalize this interpretive rule as proposed.”