Earned wage access (“EWA”) programs are financial products that allow workers to receive payment for wages they have already earned before their next scheduled payday. Many of these programs are integrated into their employers’ payroll systems, while others are offered through direct-to-consumer marketing. They do not impose mandatory fees on consumers and have not been the subject of significant consumer complaints. Indeed, for several years they have been growing in popularity among workers looking to bridge the gap between the time when they earn wages and when they are paid by their employers. Regulation of these services had been developing in a thoughtful manner, through the issuance, for example, of carefully crafted advisory opinions and the development of state regulatory requirements designed to accommodate the unique attributes of these services. Now, unfortunately but rather predictably, the Consumer Financial Services Bureau (“CFPB”) has galumphed onto center stage, proposing an interpretive rule that treats virtually all earned wage access programs as consumer lending under the Truth in Lending Act (“TILA”). This one-size-fits all-approach, if left unchecked, is sure to stifle innovation and reduce access to a product consumers desire.

It is black letter law that Regulation Z, which implements TILA, applies to credit extended to consumers for personal, family, or household services, if the credit is subject to a finance charge. In its proposed interpretive rule, the CFPB concludes that virtually all EWA products are credit under Regulation Z and thus subject to the TILA disclosure requirements, as well as state interest-rate caps that are linked to the Regulation Z definition of consumer credit. The CFPB makes this conclusion by adopting an extraordinarily expansive definition of “debt,” which is the sine qua non of “credit” under Regulation Z. Referencing decades-old editions of Black’s Law Dictionary, the CFPB concludes that EWA products create debt because “the consumer incurs an obligation to pay money at a future date,” ignoring the fact that EWA products lack virtually all of the attributes of credit in the contemporary consumer marketplace. For example, EWA products are non-recourse and repayment is limited to the amount of wages the employee has already earned. EWA customers are not subject to a credit check nor does their use of the product impact their credit scores. They also do not pay interest, late fees, or penalties. EWA products are not underwritten and do not impose fees based on creditworthiness. The dissonance between the CFPB’s sweeping assertion of jurisdiction and the lack of congruence between EWA products and the consumer credit marketplace is a strong indication that the CFPB had adopted a square-peg-in-round-hole approach that may be found to exceed its congressionally sanctioned authority, especially following the fall of the Chevron doctrine that formerly gave great deference to even the most far-reaching agency interpretations.

The CFPB next turns its attention to the purported “finance charges” connected to EWA products. The CFPB correctly points out that EWA products often provide an expedited funds delivery option, subject to a fee, and may solicit “tips” or other voluntary payments. The CFPB further notes that many consumers opt to pay for expedited delivery and that certain public data shows that up to 73% of EWA transactions result in the payment of a tip. In analyzing the legal effect of these fees, the CFPB invokes Regulation Z which states that a “finance charge” is “any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit.” Again referring to Black’s Law Dictionary, the CFPB concludes that the phrase “incident to” does not require a significant degree of connection. Thus, the CFPB readily found that expedite fees and consumer tips are offered “incident to” the EWA transaction even though they are voluntary and, in the case of tips, may not even be known until after the transaction is completed. Moreover, with respect to expedite fees, the CFPB broke from the Federal Reserve Board, which decades ago concluded that such fees connected to home equity lines of credit were not consumer “finance charges.” Without any reasoning, the CFPB simply asserted that the expedite fees considered by the Federal Reserve Board are not “as closely and integrally connected to the extension of credit as faster funds access is to obtaining an earned wage product.” As with its conclusion that EWA products are consumer credit, the CFPB’s cavalier conclusion, this time at odds with a coordinate federal agency, may be vulnerable to a legal challenge before a court no longer obligated to validate such far-fetched, loose reasoning.

Unlike some other of its recently promulgated interpretive rules, the CFPB is seeking public comment on all aspects of the proposed EWA rule prior to finalizing it. Interested parties should take the opportunity to submit comments – which are due by August 30, 2024 – to urge the CFPB to reject this ill-conceived rule. State legislators and regulators should also be especially concerned, as this rule will effectively displace state-based efforts to regulate the EWA marketplace outside of consumer lending but still subject to rigorous licensing and oversight. Should the proposed interpretive rule be finalized it is both substantively vulnerable – as an arbitrary and capricious extension of the CFPB’s authority – and subject to attack on procedural grounds, namely for creating a legislative rule that defines legal obligations without following the comprehensive notice-and-comment process required by the Administrative Procedure Act. Finally, should the Biden-Harris administration end next January, this interpretive rule, if implemented, is sure to be on a lengthy list of items that the new administration will promptly seek to set aside.