The CFPB recently issued an advisory opinion clarifying certain Earned Wage Access (EWA) programs do not involve an offer of “credit” under Regulation Z, which implements the Truth in Lending Act (TILA). This advisory opinion was issued concurrently with the CFPB’s finalization of its Advisory Opinion Policy, previously covered by WBK.
EWA products allow employees to receive advance access to earned but unpaid wages, and therefore, to meet short-term liquidity needs without turning to more costly alternatives like traditional payday loans. Typically, these programs involve an EWA provider (Provider) enabling employees to request a certain amount (or share) of accrued wages, disbursing the requested amounts to the employees prior to payday, and later recouping the funds through payroll deductions or bank account debits on the subsequent payday.
Specifically, the CFPB concluded that EWA programs incorporating the following features do not involve the offering or extension of credit and are not covered by Regulation Z:
- The Provider contracts with employers to offer and provide EWA transactions to the employer’s employees;
- The amount of each EWA program transaction does not exceed the accrued cash value of the wages the employee has earned up to the date and time of the transaction;
- The employee makes no payment to access the EWA funds or otherwise use the EWA program and the Provider does not solicit or receive tips or any other payments from the employee;
- The Provider recovers the amount of each EWA transaction only through an employer-facilitated payroll deduction from the employee’s next paycheck;
- In the event of failed or partial payroll deduction, the Provider retains no legal or contractual claim or remedy against the employee;
- Before entering into the EWA transaction, the Provider makes certain clear and conspicuously disclosures; and
- The Provider will not directly or indirectly assess the credit risk of individual employees.