CFPB publishes advisory opinion on earned wage access programs | Weiner Brodsky Kider PC
The CFPB recently Posted an advisory opinion clarifying certain Access to Earned Wage (EWA) programs does not imply an offer of “credit” under Regulation Z, which implements the Loan Truth Act (TILA). This advisory opinion was issued in parallel with the finalization by the CFPB of its advisory opinion policy, previously covered by WBK.
EWA products allow employees to gain early access to earned but unpaid wages and therefore meet short-term cash flow needs without resorting to more expensive alternatives like traditional payday loans. Typically, these programs involve an EWA provider (vendor) allowing employees to claim a certain amount (or a share) of accrued wages, disburse the requested amounts from employees before payday, and then collect the funds from the employee. through payroll deductions or bank account debits on the next payday.
More specifically, the CFPB concluded that EWA programs incorporating the following characteristics do not imply the offer or extension of credit and are not covered by Regulation Z:
- Supplier contracts with employers to offer and deliver EWA transactions to employer’s employees;
- The amount of each EWA program transaction does not exceed the accumulated cash value of wages the employee has earned up to the date and time of the transaction;
- The Employee does not make any payment to access EWA Funds or otherwise use the EWA Program and the Supplier does not solicit or receive tips or any other payment from the Employee;
- The supplier recovers the amount of each EWA transaction only through employer-facilitated payroll deduction on the employee’s next paycheck;
- In the event of failure or partial deduction from wages, the Service Provider does not retain any legal or contractual claim or remedy against the employee;
- Before entering into the EWA transaction, the provider makes certain clear and conspicuous disclosures; and
- The supplier will not directly or indirectly assess the credit risk of individual employees.