Experts say the CFPB’s EWA opinion doesn’t change the status quo | PaymentsSource

• Key insights: Earned wage access fintechs say that the Consumer Financial Protection Bureau’s advisory opinion on EWA provides important clarity on the finance product, but legal experts warn that its practical impact could be minimal. 
• What’s at stake: States have been quick to enact EWA legislation in the absence of a broader, federal statute. 
• Forward look: States will likely continue to be active in regulating EWA despite signals that a federal regulator favors a defined EWA model. 

The Consumer Financial Protection Bureau’s advisory opinion on earned wage access has been touted as a win for the industry, but legal experts warn it lacks finality and does little to quell the patchwork of state-specific regulations. 

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The CFPB said that “covered” earned wage access products — which it describes as being employer partnered, among other requirements — should not be considered credit under the Truth in Lending Act because workers are accessing their own earned wages. It also said that tips and expedited delivery fees should not be considered finance charges if a free option to receive the funds was readily available. 

The bureau’s opinion lends credence to the industry’s long-held stance that it should not be regulated as a lending product, and comes as a win heading into the new legislative year, when more states are expected to take up EWA frameworks. 

For B2B providers, the opinion puts them “in a really good spot,” Tal Clark, CEO of Instant Financial, told American Banker. “The market now understands that what we’re doing is not credit, at least based on this advisory opinion.” 

Instant Financial has had a number of businesses that have been hesitant to adopt EWA programs because of the lack of clear guidance from federal regulators, Clark said. 

“We believe we’ll see significant employers now move forward,” Clark said. 

Jason Lee, chief of Chime Enterprise, also said that the bureau’s guidance offered important validation for employers.

“CFPB has confirmed that employer-integrated earned wage access is not a loan – especially if it is free. And with state-level wage assignment laws already established, every employer in America now has the clarity they need – at both the federal and state level – to confidently offer EWA to their employees,” Lee said in an email to American Banker.

The CFPB opinion, which is reminiscent of the bureau’s 2020 advisory opinion issued under former director and Trump appointee Kathleen Kraninger, does provide clarity that was not previously included, Carlin McCrory, an associate at Troutman Pepper Locke, told American Banker. 

For one, it removes the condition from the 2020 advisory that EWA had to be a free product in order to not be considered a finance product, McCrory said. It also changes the notion that repayment had to be through a direct payroll deduction. Now, the deduction only needs to use the payroll process. 

But the opinion does not preclude states from designating EWA as a credit product, and leaves open the possibility of a different stance with a new administration. 

“This guidance is expressly non-binding,” Eamonn Moran, a partner at Holland & Knight, told American Banker. “Earned wage access is going to remain a live regulatory and litigation issue for fintechs, banks, employers, compliance teams alike.”

And federal retrenchment doesn’t always equal regulatory clarity, especially where state law and courts may diverge, Moran said. “Probably states feel more pressure now to get in the mix if they feel like these types of products deserve some type of consumer protection.” 

It also leaves open the door for other types of direct-to-consumer products that are not within the opinion’s scope to either be deemed credit or not deemed credit, he said. 

Instant Financial expects state lawmakers to remain active in regulating the space, Clark said. “We do expect that [the advisory] will shape the framework of state legislation going forward. Maybe it leads to more consistency at the state level.” 

As for its practical impact, the CFPB’s advisory opinion will not have a material impact on existing earned wage access providers in the market because they still have to consider state-level legislation, McCrory said. 

“We already have established players in the market who have already made their choice. If you’re direct to consumer, you’re probably full steam ahead and you’re not modifying your program for this. If you’re employer integrated, perhaps you make small tweaks to your program in accordance with this opinion. If you’re thinking about offering an EWA product, perhaps you’d then structure it with guidance to comply,” McCrory said.  

“But I’m not sure we’re going to see huge ripple effects because of this guidance,” she said.