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Financial Services Law Insights and Observations

CFPB issues two new CAS approval orders

Federal Issues Fintech Regulatory Sandbox No Action Letter TILA Regulation Z

Federal Issues

On December 30, the CFPB issued two compliance assistance sandbox (CAS) approval orders covering a dual-feature credit card and an earned wage access product. The first approval was issued to a federal savings bank regarding its proposal to develop a “dual-feature credit card,” which would be offered to consumers with limited or damaged credit history to help reestablish more favorable credit history. According to the approval order, the consumer would be required to provide a security deposit to be used with the secured credit card feature and after “at least one year” and meeting certain eligibility requirements, the consumer would be offered to “graduate” to unsecured use of the credit card. The three-year approval order, by operation of TILA section 130(f), provides the bank a safe harbor from liability under TILA and Regulation Z, to the fullest extent permitted by section 130(f), as to any act done in good faith compliance with the order.

The second approval order covers certain aspects of an earned wage access (EWA) payment program, which allows employees access to their earned but unpaid wages prior to payday. According to the CAS application, an employee of a participating employer can download the company’s app and agree to the company’s terms prior to engaging in an EWA program. Among other things, the company notes that it will not engage in any debt collection activities related to the EWA program or submit reports to a consumer reporting agency regarding the transactions. The two-year approval order, by operation of TILA section 130(f), provides the bank a safe harbor from liability under TILA and Regulation Z, to the fullest extent permitted by section 130(f) as to any act done in good faith compliance with the order.

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