On November 30, 2020, the Consumer Financial Protection Bureau (“CFPB”) set forth procedures for the issuance of advisory opinions provided as interpretive rules to resolve regulatory uncertainty, effective immediately. Under this new advisory opinion schema, the CFPB concurrently released two advisory opinions: one on earned wage access products and one on private education loans.

Advisory Opinions

A request for an advisory opinion must include:

• Identity of the person or entity seeking the opinion, or the person or entity submitted a request on behalf of a third part (e.g., outside counsel, in which case clients need not be identified);
• Statement about the absence of investigation or litigation;
• All material facts about an actual fact or course of action that is (a) within the CFPB’s purview and (b) that the person or entity is engaged in or is planning to engage in;
• A description of the uncertainty or ambiguity, including (a) identification of the regulatory or statutory provision at issue; (c) a proposed interpretation of the law or regulation; and (d) an explanation of why that proposed interpretation is an appropriate resolution of the uncertainty or ambiguity;
• Identification of information that should be treated as confidential.

Each advisory opinion will be specific to the facts provided, which the CFPB will not generally investigate independently, making it important that the request include a clear description of any material facts. Where the advisory opinion permits for a safe harbor, as provided for in the Truth in Lending Act (“TILA”), Equal Credit Opportunity Act, Electronic Fund Transfer Act, Real Estate Settlement Procedures Act, and Fair Debt Collection Practices Act, that fact will be explained in the advisory opinion. The scope and terms of an advisory opinion will be set out in the advisory opinion itself.

The CFPB will weigh multiple factors in determining whether to issue an advisory opinion on a specific topic, including issues that it has previously noted that are of significant importance or where clarification would provide significant benefit, and where the CFPB has not previously addressed a highlighted ambiguity. Conversely, the CFPB may decide an advisory opinion is not the appropriate tool for responding to an inquiry. In particular, issues where the CFPB is actively investigating or enforcing a related matter or a rulemaking is proposed or being planned.

Opinions are divided as to the benefit of the new program. Senators Elizabeth Warren and Sherrod Brown sent a letter to CFPB Director Kathy Kraninger in December 2019 expressing “serious concerns that issuing advisory opinions tailored to companies’ specific circumstances is not appropriate, especially if companies could use these opinions to circumvent consumer financial laws or as a defense in litigation by the Bureau or other parties.”^[1] Lauren Saunders, an associate director at the National Consumer Law Center, said a rulemaking would be more appropriate means of adjusting regulations, raising the concern that this would increase confusion by issuing piecemeal interpretations and that it could “relieve companies of the obligation to comply with the law.”^[2] Implementation of the program also rejects criticism that the program will take up too much of the agency’s time and energy to run, noting that it represents a commitment of resources by the CFPB.^[3]

Conversely, the decision was reportedly hailed by industry representatives. Former National Association of Realtors President Elizabeth Mendenhall said the housing industry would benefit from “authoritative guidance, along with delayed enforcement” on the CFPB’s “Know Before You Owe” mortgage disclosure rule.^[4] Brian Johnson, former deputy director at the CFPB, called the advisory opinions “a way for the biggest areas of ambiguity to be resolved for everybody.”^[5]

“The overhaul of the mortgage disclosures was, and continues to be to a certain extent, an uphill battle for settlement service providers,” wrote Mendenhall. “Such authoritative guidance, along with delayed enforcement, will provide the support sought by industry when undergoing an intensive regulatory shift and ultimately result in more attainable compliance.”

Earned Wage Access Products

Regulation Z, implementing TILA, applies to individuals and businesses that offer or extend credit (a) to customers; (b) regularly; (c) subject to a finance charge or payable in more than four installments; and (d) primarily for personal, family, or household purposes.^[6] Regulation Z defines “credit” as “the right to defer payment of debt or to incur debt and defer its payment.”^[7]

The CFPB released an advisory opinion on November 30, 2020 directly addressing earned wage access (“EWA”). While the CFPB is careful to limit its opinion to programs that meet specific criteria, it notes that generally, EWA programs enable 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.”^[8] To be covered by the advisory opinion, an EWA must meet the following criteria: (a) be provided by someone who has contracted with the employer; (b) not exceed the agreed cash value of the wages accrued at the time of a given EWA transaction based on information provided directly by the employer; (c) no payment is made to effect an EWA, including voluntary payments; (d) the provider may recover the amount of an EWA only through an employer-facilitated deduction from the employee’s next paycheck, though an additional deduction may be attempted for administrative or technical errors; (e) the provider retains no legal or contractual claim if the payroll deduction is insufficient; (f) the provider will not engage in any debt collection activities related to an EWA; and (g) the provider will not asses the credit risk of individual employees.

The CFPB determined that such transactions are not “credit” as defined by Regulation Z. No debt is implicated, so EWAs “do not provide employees with ‘the right to defer payment of debt or to incur debt and defer its payment.’”^[9] Instead, EWA programs “functionally operate[] like an employer that pays its employees earlier than the scheduled payday.”^[10] There is no extension of credit where the consumer is using the consumer’s own money.^[11] This read, the advisory opinion notes, is further consistent with the official commentary to Regulation Z, which stated that borrowing against the accrued cash value of an insurance policy is not considered credit under the regulation “if there is no independent obligation to repay.”^[12]

The advisory opinion finds that there are several crucial distinctions between an EWA and a credit transaction, including:

• No rights against the employee in the event of nonpayment
• No engagement in debt collections, reporting to consumer reporting agencies, or selling or placing the transaction as debt with a third party
• No obligation to pay the provider
• No charge to the employee, including no periodic or access fees
• No interest or other fees charged against the EWA transaction so the amount to be recovered does not increase with the passage of time
• No late fees or prepayment penalties
• No payment authorization, like a check or ACH authorization
• No credit risk assessment or credit reporting

The CFPB also notes the relation back to its 2017 Payday Lending Rule, finding the current interpretation presented in this advisory opinion to be consistent.

Private Education Loans

TILA was amended in 2008 by the Higher Education Opportunity Act of 2008 (“HEOA”) by adding new requirements to creditors that make “private education loans.”^[13] HEOA defined a “private education loan” under TILA to be a loan that is (a) not “made, insured, or guaranteed under title IV of the Higher Education Act of 1965,” and (b) “issued expressly for postsecondary educational expenses to a borrower,” whether issued directly from the private educational lender or provided through the educational institution.^[14]

The CFPB’s advisory opinion, also released on November 30, 2020, addresses whether refinance and consolidation loans are included in the definition under “private education loans” per the conditions set forth in HEOA.

The advisory opinion notes that the first criteria – whether the loans are originated or insured by the government – is not at issue and instead focuses on whether such refinance or consolidation loans are “issued or extended by creditors ‘expressly for postsecondary educational expenses.’”^[15]

Noting that the commentary to Regulation Z resolves this ambiguity with respect to loans consolidating existing private education loans,^[16] the CFPB solely addresses “whether a loan that consolidates existing Federal education loans is issued or extended ‘expressly for postsecondary educational expenses to a borrower.’”^[17]

The CFPB states its belief that a loan that consolidates or refinances federal loans incurred expressly for postsecondary educational expenses is, itself, “expressly for postsecondary educational expenses.” In so finding, the CFPB notes that application and issuance are both made with the express understanding by both borrower and creditor that they will be used to satisfy debt incurred for postsecondary education expenses. It further notes that Congress referred to a “borrower” instead of solely a “student.” Therefore, the CFPB states, “the statute can best be implemented by construing ‘private education loan’ to include loans originated to consumers other than those currently in school, such as former students.”^[18]

This reading, the CFPB finds, also serves the meaningful disclosure intent of Congress, permitting more robust comparison of credit options.

^[1] Letter to Kathy Kraninger, Sens. Elizabeth Warren and Sherrod Brown (Dec. 5, 2019).

^[2] Berry, Kate, “Will CFPB advisory opinions offer clarity, or give companies a pass?,” American Banker (July 1, 2020).

^[3] Hill, Jon, “CFPB Finalizes Advisory Opinion Policy, Unveils 2 Opinions,” Law360 (Nov. 30, 2020).

^[4] Id.

^[5] Id.

^[6] 12 CFR 1026.1(c)(1). Certain auto dealers are exempted from Regulation Z.

^[7] 12 CFR 1026.2(a)(14).

^[8] Advisory Opinion on Earned Wage Access Programs, Consumer Financial Protection Bureau (Nov. 30, 2020).

^[9] Id. at 7.

^[10] Id. at 8.

^[11] Id. at 9.

^[12] Id. (citing 12 CFR part 1026, supp. I, comment 2(a)(14)-1).

^[13] Pub. L. 110-315, 122 Stat. 3078 (2008).

^[14] 15 U.S.C. 1650(a)(8)(A)(ii). The advisory opinion notes that Regulation Z makes minor changes to this definition, which are not material for the instant case.

^[15] Advisory Opinion on Private Student Loans, Consumer Financial Protection Bureau (Nov. 30, 2020). (citing 20 U.S.C. 1087ll (“TILA defines ‘postsecondary educational expenses’ as ‘any of the expenses that are included as part of the cost of attendance of a student, as set forth in the Higher Education Act of 1965.’ That Act, in turn, defines those expenses by providing a lengthy and detailed list of expenses, including a broad range of items such as tuition and fees, books and supplies, room and board, and some dependent care expenses, among others.”).

^[16] Id. at 11 (“The commentary to Regulation Z states that the phrase ‘extended expressly [] for postsecondary educational expenses’ includes ‘loans extended to consolidate a consumer’s preexisting private education loans.’”) (citing 12 CFR part 1026, supp. I ⁋ 46(b)(5)-1).

^[17] Id.

^[18] Id. at 12 (internal citation omitted).

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