The Consumer Financial Protection Bureau (CFPB) is seeking to crack down on earned wage products, arguing that many should be considered consumer loans, and thus subject to US lending laws.
The rise of EWA. Earned wage access (EWA) is a growing trend in the total rewards space, with employers such as the Nashville Predators and Valor Hospitality offering their employees advance access to their paychecks as a benefit. Some 12% of employers offer EWA, a 2023-2024 survey by Sapient Insights Group found.
But a CFPB analysis of eight companies partnering with employers on EWA found workers often incur fees to get their wages early. Among workers whose employers didn’t cover these fees, more than 90% paid at least one fee in 2022, the report found. Most fees went toward expedited transfers, and ranged from $1 to $5.99.
To better regulate the growing market for EWA products, the CFPB proposed an interpretive rule that stipulates many EWA products fall under the Truth in Lending Act, which requires lenders to disclose charges and fees associated with a loan. “The CFPB’s actions will help workers know what they are getting with these products and prevent race-to-the-bottom business practices,” CFPB Director Rohit Chopra said in a July 18 statement.
What the CFPB is proposing. Under a proposed rule developed by the CFPB, many paycheck advance products would be obligated to fulfill certain requirements under the Truth in Lending Act. Paycheck advance products that do not include fees, and are “truly free to the employee,” would be exempt from many of the requirements, the CFPB said.
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The agency posited such disclosures from earned wage lenders would help borrowers “understand and compare loan options,” as well as benefit companies that offer competitive products.
How EWA companies are reacting. DailyPay, which works with companies like Adecco and Dollar Tree, said in a statement it strongly disagreed with the CFPB’s proposed rule. The company’s EWA offering “does not have the hallmarks of a loan,” such as origination fees, late fees, or reporting to consumer credit agencies, DailyPay said.
Penny Lee, president of the Financial Technology Association, which represents EWA companies, took issue with the proposed rule as well, arguing in a statement that EWA shouldn’t be considered a loan, as it’s “no-cost” and “non-recourse.” She said the CFPB’s action could “hurt millions of workers who rely on Earned Wage Access to tap into their already earned wages.”
The CFPB is accepting comments on its proposed rule through August 30, and industry players are expected to sue, Bloomberg Law reported. Employers offering EWA can pay attention not only to how regulations surrounding the practice evolve at the federal level, but also the state level. Some states, such as Nevada, Missouri, Wisconsin, and South Carolina, have passed laws making it easier for EWA lenders to operate, whereas others are considering more stringent regulations. California regulators have proposed rules that would require EWA providers to register with the state’s Department of Financial Protection, or get a license, as well as limit charges borrowers can incur. The CFPB wrote a letter in support of California’s proposed actions.