FinTech: How CFPB EWA Compliance Regulations Affect The Industry

CFPB Earned Wage Access
CFPB earned wage access compliance
rules and regulations marked on rubber stamp

In 2020, the ability to access your income as you earn it has shifted from a nice benefit to have to an essential one. Amid the global health crisis, the antiquated way employees have been paid for decades is changing thanks to advancements in technology. With a surge in on-demand pay providers, government agencies are weighing in on which models are optimal for consumers.

On November 30, the Consumer Financial Protection Bureau (CFPB) finalised its advisory opinion process and simultaneously issued its first advisory opinions, including one which concerned Earned Wage Access (EWA).  The advisory opinion process, similar to a private letter ruling from the IRS or a no-action letter from the SEC, is specific to a certain set of facts and circumstances, and each opinion has narrow applicability.

In the EWA opinion, the CFPB explains how a new technology called Earned Wage Access, by enabling workers to get paid as they earn money, rather than wait weeks at a time for their employer-scheduled payday, has provided a critical and more consumer-friendly alternative to payday loans and other predatory alternatives.

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CFPB Earned Wage Access Approval Order

CFPB Earned Wage Access

On December 30, 2020, the CFPB issued a follow-up order in response to its November 30, 2020 EWA advisory opinion, which provides guidance on certain earned wage access (EWA) programs. AS a matter of fact, the Consumer Financial Protection Bureau on Dec. 30 issued two compliance assistance sandboxes: one for dual usage credit cards and another for employee access to earned but unpaid wages. CFPB compliance sandboxes provide a safe harbor for banks to test products or services that have been approved by the bureau.

One of the Earned Wage Access providers (Payactiv)  received a compliance sandbox for its program that facilitates employee-requested transfers of wages that an employee has already earned, capped at no more than 60% of the accrued cash value of the earned wages.

Under the CFPB policy, EWA providers had the right to request clarity on specific points that deal with regulatory uncertainty. Because the Bureau’s November 30 opinion identified specific at-risk models that might be considered extenders of credit, this provider requested a review of their at-risk set of facts. This was the reason PayActiv requested this follow-up order, because it was at risk of being deemed non-compliant with the CFPB’s initial advisory opinion on earned wage access.

The opinion does not grant any approval of the specific model itself. In fact, the CFPB follow-up order states that the “Approval Order does not constitute the Bureau’s endorsement of the PayActiv EWA Program or any other product or service offered or provided by PayActiv.”

DailyPay has never required any form of employee payback, debiting or payroll deduction that would implicate the extension of credit. The November CFPB opinion and the December CFPB EWA Approval Order were narrow issuances of guidance, to provide clarity around which practices of other providers are problematic. Particularly, the December order notes that wage deduction programs still face restrictions and prohibitions under state wage and hour laws. The safe harbor under the order excludes this key risk. Providers with wage deduction methods can expose their partner employers to this and other legal risks, and are not covered for these risks under the November opinion or the December order. Furthermore, employers relying on wage deduction-based programs must now contend with additional restrictions and concerns regarding this practice.