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  • Nevada approves regulation on earned wage access

    State Issues

    On June 20, the Nevada Secretary of State approved Regulation NAC 604D, LCB File No. R096-23 (the Regulation), issued by the Nevada Department of Business and Industry, Financial Institutions Division, which established provisions to implement SB 290 (the Act) relating to earned wage access (covered by InfoBytes here).

    The Regulation established the commissioner’s interpretation of the term “indirectly” as used in the definition of “employer-integrated earned wage access services” in the Act. As the Legislative Counsel’s Digest for the Regulation explained, “S.B. 290 defines employer-integrated earned wage access services to mean the delivery to a user of access to earned but unpaid income determined based on employment, income or attendance data obtained directly or indirectly from an employer.” In this context, the Regulation provided that data obtained “indirectly” from an employer means “verified data of the employment, income, or attendance of the user that is:” (i) “Obtained from an integrated system”; (ii) “Not directly obtained from the system of an employer”; and (iii) “Not directly obtained from the user.” The Regulation further provides that an “owner” was “a person who holds an ownership interest of at least 10 percent or more in an applicant for the issuance of a license as a provider that is a business entity.” The Regulation also clarified that providers are prohibited from charging cancellation fees of any kind.

    The Regulation set forth $1,000 fees each for (i) the initial application for a license; (ii)  the initial issuance of a license as a provider; (iii) the annual renewal of such a license; and (iv) the reinstatement of an expired license. Furthermore, the Regulation provided that each application for licensure by a provider that is a business entity must be accompanied by a list consisting of each person who holds an ownership interest in the applicant.

    Pursuant to the Regulation, licensees will be required to report specific activity-based information to the state, including, non-exhaustively, the (i) total number and value of fees and expedited delivery fees paid by users within the prior year; (ii) the number of users with outstanding proceeds at the time of reporting and the value of such outstanding proceeds; (iii) the total number of requests for reimbursement of overdraft or NSF fees in the prior year; and (iv) voluntary tips received. Licensees will also be required to submit audited financial statements by April 15 each year (or, if not available, unaudited financial statements by April 15, followed by audited financial statements by June 30 of that same year). Licensees must retain records for at least six years and must not engage in misleading advertising. With respect to supervision, the Regulation establishes an hourly fee of $75 that the commissioner will charge for any supervision, examination, audit, investigation or hearing conducted pursuant to the provisions of the Act and provided that the commissioner can revoke or suspend licenses for any violations and has broad authority to request information during examinations or investigations.

    This Regulation will go into effect on July 1. 

    State Issues Licensing Nevada Earned Wage Access

  • Montana AG opines that EWA products are not loans

    State Issues

    On December 22, the Attorney General from the State of Montana opined that Earned Wage Access (EWA) products are not loans under a certain set of conditions. EWA products provide employees with fast access to cash by accessing cash before they are paid by their employer. In Montana, the Speaker from the House of Representatives asked the Attorney General whether EWA products meet the definition of either a “consumer loan” or “deferred deposit loan” under the Montana Code. If so, then EWAs would have a right to repayment and a presumption of interest or other fees, as do other loans under Montana law. The Attorney General opined, however, that EWAs are not loans given a certain set of conditions: (i) they are fully non-recourse, (ii) they do not have interest fees or other expenses, and (iii) they do not exceed the cash value of the consumer’s accrued income. The Attorney General cited the CFPB’s Payday Lending Rule as evidence that the “accrued cash value of income is effectively the worker’s own money and providing no-cost access to that income does not constitute a loan.”

    State Issues State Attorney General Montana Earned Wage Access Loans

  • Nevada requires licenses for EWA providers

    The Nevada governor recently signed SB 290 (the “Act”) outlining several requirements for providers of earned wage access (EWA) products. EWA products allow individuals to access their earned income before receiving their regular paycheck. To operate such services in Nevada, providers must obtain a license from the Nevada Commissioner of Financial Institutions. The licensing requirements apply to both “employer-integrated” services, where the provider receives verified data directly from the employer or the employer’s payroll service to deliver unpaid wages, and “direct-to-consumer” services where the provider delivers unpaid wages after verifying the earned income based on data not obtained from the employer or their payroll service. Notably, the Act specifies that EWA products are not loans or money transmissions under Nevada law and are not subject to existing laws governing these products. The Act outlines application and fee requirements (licenses will be issued via the Nationwide Multistate Licensing System and Registry) and requires licensed EWA providers to submit annual reports to the commissioner by April 15 of each year.

    Providers of EWA products are also subject to certain prohibitions, which include: (i) sharing any fees, voluntary tips, gratuities, or other donations with an employer; (ii) the use of credit reports or credit scores to determine eligibility for an EWA service; (iii) the imposition of late fees or penalties for nonpayment by users; (iv) the reporting of a user’s nonpayment to a consumer reporting agency or a debt collector; (v) coercion of users to make payments through civil action; and (vi) restrictions on using a third-party collector or debt buyer to pursue collections from a user.

    Additionally, EWA providers must, among other things, (i) implement policies and procedures to respond to questions and complaints raised by users (responses must be provided within 10-business days of receipt); (ii) disclose to the user his or her rights, as well as all related fees, prior to entering an agreement; (iii) allow users to cancel their EWA agreements at any time without being charged a fee; (iv) conspicuously disclose that any tips, gratuities, or donations paid by the user do not directly benefit any specific employee of the EWA provider or any other person (providers must also allow users to select $0 as an amount for such a tip); (v) comply with the EFTA when seeking payment of outstanding proceeds, fees, or other payments from a user’s depository account; and (vi) reimburse users for any overdraft or non-sufficient funds fees incurred as a result of the provider attempting to collect payment on a date earlier than disclosed to the user or in an amount different from what was disclosed.

    On or before September 30, the commissioner is required to prescribe application requirements. EWA providers who were engaged in the offering of EWA services as of January 1, 2023, may continue to provide services until December 31, 2024, if the provider submits an application for licensure by January 1, 2024, and otherwise complies with the Act’s provisions. The Act becomes effective immediately for the purpose of adopting any regulations and performing any preparatory administrative tasks that are necessary to carry out the provisions of the Act and on July 1, 2024, for all other purposes.

    Licensing State Issues State Legislation Nevada Earned Wage Access Consumer Finance NMLS

  • Arizona AG: Earned wage access products are not loans

    State Issues

    Recently, the Arizona attorney general issued an opinion confirming that earned wage access (EWA) products are not considered consumer loans under Arizona law, and that persons who make, procure, or advertise an EWA product are not subject to licensure as a consumer lender by the Arizona Department of Insurance and Financial Institutions. The opinion concluded that an EWA product offered as a no-interest, no-fee, non-recourse product does not fall within the definition of “consumer loan” under Arizona Revised Statutes § 6-601(7).

    First, a fully non-recourse EWA product “represents a payment of wages already earned by the employee” and “does not allow recourse against the employee in the event the provider is unable to recoup all or some portion of the advance,” the opinion explained. The opinion added that a fully non-recourse EWA product is one in which “the provider obtains no legal or contractual right to repayment against the employee, does not engage in any debt collection activities with regard to any unpaid balance, does not sell or assign any unpaid balance to a third party, and does not report non-payment to any consumer credit reporting agency.”

    Second, and independently, the AG opined that an EWA product is not a consumer loan so long as the provider does not impose a “finance charge,” as that term is defined by A.R.S. § 6-601(11). Specifically, “a non-recourse EWA product that requires repayment only of the principal balance is not a 'loan.'” While the Consumer Lenders Act (CLA) “does not expressly state that the obligation to repay principal is not a “finance charge,” requiring repayment of principal is self-evidently not an amount payable incident to or as a condition of a consumer lender loan.”

    The opinion noted, however, that a provider “may also receive revenue through services ancillary to providing an EWA product without converting the EWA product into a “loan” under the CLA, such as by requesting a voluntary gratuity, charging a fee for expedited transfer of an EWA payment, or earning interchange revenue for processing a card payment. As long as the provider does not condition the provision of an EWA product on the “receipt of any such ancillary revenue” or impose fees or charges that fall within the CLA’s definition of “finance charge,” the EWA product will not meet the CLA’s definition of a “consumer loan.”

    The opinion referred to guidance issued by other regulators who have drawn similar conclusions that an EWA product is not a loan so long as the program meets specific criteria. Such references include the 2020 CFPB advisory opinion on EWA products. As previously covered by InfoBytes, the Bureau’s advisory opinion addressed uncertainty as to whether EWA providers that meet short-term liquidity needs that arise between paychecks “are offering or extending ‘credit’” under Regulation Z, which implements TILA. The advisory opinion stated that “‘a Covered EWA Program does not involve the offering or extension of ‘credit,’” and noted that the “totality of circumstances of a Covered EWA Program supports that these programs differ in kind from products the Bureau would generally consider to be credit.” The Arizona AG opinion highlighted the Bureau’s conclusion that EWA products do not involve debt because “a Covered EWA Program facilitates employees’ access to wages they have already earned, and to which they are already entitled, and thus functionally operate[] like an employer that pays its employees earlier than the scheduled payday.”

    Last January, CFPB General Counsel Seth Frotman issued a letter in response to concerns raised by consumer advocates (covered by InfoBytes here), stressing that the CFPB’s 2020 advisory opinion “is limited to a narrow set of facts—as relevant here, earned wage products where no fee, voluntary or otherwise, is charged or collected.” Frotman noted, however, that due to “repeated reports of confusion caused by the advisory opinion due to its focus on a limited set of facts,” he planned to recommend that the CFPB director consider ways to provide greater clarity on these issues. He emphasized that the advisory opinion did not purport to interpret whether covered EWA products would be “credit” under other statutes other than TILA, such as the CFPA or ECOA, or whether they would be considered credit under state law.

    State Issues State Attorney General Earned Wage Access Consumer Lending Consumer Finance Arizona CFPB

  • CFPB ends EWA sandbox

    Federal Issues

    On June 30, the CFPB issued an order terminating a financial services company’s sandbox approval order related to its earned wage access (EWA) lending model. As previously covered by InfoBytes, the Bureau issued a two-year approval order to the company in December 2020, which provided the company 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 company’s product allowed employees access to their earned but unpaid wages prior to payday and granted employees of a participating employer the ability to download the company’s app and agree to the company’s terms prior to engaging in an EWA program. The Bureau said in its announcement that it had informed the company earlier in June “that it was considering terminating the approval order in light of certain public statements the company made wrongly suggesting a CFPB endorsement of its products.” According to the Bureau, the company then requested termination of the order in order, citing the need to make changes to its fee model that would have required modifying the existing approval order. The Bureau noted that the company “requested termination of the order so it could make fee model changes quickly and flexibly.” The Bureau’s announcement indicated that it plans to issue guidance “soon” regarding earned wage access products and the definition of “credit” under TILA and Regulation Z.

    Federal Issues CFPB Regulatory Sandbox Earned Wage Access TILA Regulation Z Consumer Finance

  • CFPB may revisit EWA guidance

    Federal Issues

    On January 18, acting CFPB General Counsel Seth Frotman sent a letter to consumer advocates responding to their concerns that the Bureau’s November 2020 advisory opinion on earned wage access (EWA) products was being misused as justification for passage by proponents of a pending New Jersey bill that would permit third-party earned wage access companies to charge fees or permit “tips” for their products without having to abide by the state’s 30 percent usury cap. As previously covered by InfoBytes, the Bureau issued an advisory opinion on EWA products to address the uncertainty as to whether EWA providers that meet short-term liquidity needs that arise between paychecks “are offering or extending ‘credit’” under Regulation Z, which implements TILA. The advisory opinion stated that “‘a Covered EWA Program does not involve the offering or extension of ‘credit,’” and noted that the “totality of circumstances of a Covered EWA Program supports that these programs differ in kind from products the Bureau would generally consider to be credit.” In December 2020, the Bureau approved a compliance assistance sandbox application, which confirmed that a financial services company’s EWA program did not involve the offering or extension of “credit” as defined by section 1026.2(a)(14) of Regulation Z. The Bureau noted that various features often found in credit transactions were absent from the company’s program, and issued a two-year approval order, which provides the company 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 (covered by InfoBytes here). 

    In his letter, Frotman stated that “[i]t appears from your recounting of the legislative history that the advisory opinion has created confusion, as proponents of the bill seem to have misunderstood the scope of the opinion. The CFPB’s advisory opinion, by its terms, is limited to a narrow set of facts—as relevant here, earned wage products where no fee, voluntary or otherwise, is charged or collected.” Frotman acknowledged that the Bureau’s advisory opinion has also received pushback from consumer groups who sent a letter last year urging the Bureau to rescind the advisory opinion and sandbox approval and regulate fee-based EWA products as credit subject to TILA (covered by InfoBytes here). “Given these repeated reports of confusion caused by the advisory opinion due to its focus on a limited set of facts, I plan to recommend to the Director that the CFPB consider how to provide greater clarity on these types of issues,” Frotman wrote. He further stated that the advisory opinion did not purport to interpret whether the covered EWA products would be “credit” under other statutes other than TILA, including the CFPA or ECOA, or whether they would be considered credit under state law.

    Federal Issues CFPB Earned Wage Access State Issues State Legislation Regulatory Sandbox TILA Regulation Z Advisory Opinion

  • DFPI issues proposed rulemaking under CCFPL

    On November 17, the California Department of Financial Protection and Innovation (DFPI) issued an invitation for comments on proposed rulemaking under the California Consumer Financial Protection Law (CCFPL). The CCFPL provides DFPI with the authority to require companies that provide financial products and services to California consumers to register with the agency. DFPI is also able to “require registrants to generate and provide records to facilitate oversight of registrants and detect risks to California consumers.” The draft rule proposes requiring registration for industries that engage in the following financial products and services: debt settlement, student debt relief, education financing, and wage-based advances. According to DFPI’s notice, with respect to education financing, the proposed rulemaking covers providers of any form of credit where the credit’s purpose is to fund postsecondary education. It also covers “credit regardless of whether the provider labels the credit a loan, retail installment contract, or income share agreement, and regardless of whether the credit recipient’s payment obligation is absolute, contingent, or fixed.” Additionally, DFPI notes that “[w]ith respect to education financing with income-based payments, including contracts sometimes referred to as income share agreements,” DFPI proposes “reporting requirements that in some cases diverge from the reporting requirements for education financing with fixed payments.”

    The proposed rulemaking provides definitions to implement the CCFPL registration regulations and addresses several registration provisions including the following:

    • Provides that a person must not engage in the business of offering or providing the designated products and services without first registering with the commissioner unless exempt. The DFPI’s notice stipulates that registering with the commissioner “does not constitute a determination that other laws, including other licensing laws under the commissioner’s jurisdiction, do not apply” and the proposed rulemaking further provides that “granting registration to an applicant does not constitute a determination that the applicant’s acts, practices, or business model complies with any law or regulation.”
    • Outlines registration requirements and designates NMLS to handle all applications, registrant filings, and fee payments on behalf of the commissioner. The proposed rulemaking lays out information that must be submitted and maintained as part of the registration application, as well as notices required by state law, and steps registrants must take when making changes to an application filing. An applicant’s failure to provide all or any part of the requested information may prevent approval, DFPI states.
    • Outlines requirements for registrants seeking to conduct business at a new branch office or at a new location for an existing branch. Requests must be filed with NMLS within 30 calendar days of the date a registrant engages in business at the new branch office or new location.
    • Addresses procedures related to annual assessments and pro rata payment requirements, as well as annual reporting requirements for registrants based on the products and services they provide.
    • Outlines procedures and requirements for rescinding a summary revocation order when a former registrant submits a written request for reinstatement to the commissioner.
    • Discusses procedures related to the effectiveness, surrender, and revocation of a registration. DFPI provides that a “registration issued under this subchapter is effective until it is revoked by the commissioner, is surrendered by the registrant, or becomes inoperative under subdivision (b) of Financial Code section 90009.5.”

    DFPI’s notice also seeks comments on proposals to streamline the registration process and improve transparency and clarification on matters related to, among other things: (i) the types of information that may be subject to public disclosure; (ii) annual reporting requirements not included in the proposed rulemaking; and (iii) certain registration requirements that may be applicable to DFPI licensees and licensees and registrants of other state agencies. In addition, DFPI seeks stakeholder feedback on the economic impact of the draft rules on businesses and consumers in California.

    Comments on the proposed rulemaking are due December 20.

    Licensing State Issues State Regulators DFPI CCFPL Consumer Finance Debt Settlement Student Lending Debt Relief Earned Wage Access NMLS

  • House fintech task force examines buy now/pay later industry

    Federal Issues

    On November 2, the House Financial Services Committee’s Task Force on Financial Technology held a hearing titled “Buy Now, Pay More Later? Investigating Risks and Benefits of BNPL and Other Emerging Fintech Cash Flow Products,” urging regulators to examine the BNPL industry. The committee memorandum highlighted the rise in consumers products offered by fintechs, such as BNPL, earned wage access, and overdraft avoidance products, and warned that while these products may help consumers manage their personal cash flow, they also have the potential to create unsustainable levels of debt. FSC staff noted that many lending disclosure requirements, including those under TILA, may not apply to several of these products, thus creating concerns regarding consumers’ understanding of the associated risks. Pointing out that payments made on many of these products are not reported to credit bureaus, FSC staff raised the issue of whether consumers are missing out on opportunities to build credit.

    The task force heard from several industry witnesses who discussed, among other things, current federal and state consumer protection regulations that apply to BNPL products. One witness stressed the importance of “balanced and thoughtful regulation” that benefits consumers and merchants using these new payment solutions, and noted that the industry is actively working with credit bureaus on ways to share repayment data. House Financial Services Chair Maxine Waters (D-CA) also urged the CFPB to “look[ ] deeply” at these emerging products to gain a better understanding of how they may impact low- and moderate-income consumers and borrowers of color. Representative Blaine Luetkemeyer (R-MO) noted, however, that these products “allow[] people to purchase products, [and] pay for them in a timely manner as they can afford them.” Representative Warren Davidson (R-OH) agreed, stressing that policymakers need to “avoid punishing new products for not fitting within regulatory buckets that were already built” and “should avoid overly impairing consumer choices on how they spend money.”

    Federal Issues House Financial Services Committee CFPB Buy Now Pay Later Earned Wage Access Overdraft Consumer Finance Disclosures TILA Credit Report Consumer Lending Fintech

  • CFPB urged to regulate fee-based EWA products as credit subject to TILA

    Federal Issues

    On October 12, CFPB Director Rohit Chopra received a letter from “96 consumer, labor, civil rights, legal services, faith, community and financial organizations and academics,” which urged the Bureau to rescind its earned wage access (EWA) advisory opinion and sandbox approval, and requested that the Bureau regulate fee-based EWA products as credit subject to TILA. As previously covered by InfoBytes, last November the Bureau issued an advisory opinion on EWA products to address the uncertainty as to whether EWA providers that meet short-term liquidity needs that arise between paychecks “are offering or extending ‘credit’” under Regulation Z, which implements TILA. The advisory opinion stated that ““a Covered EWA Program does not involve the offering or extension of ‘credit,’” and noted that the “totality of circumstances of a Covered EWA Program supports that these programs differ in kind from products the Bureau would generally consider to be credit.” In December, the Bureau approved a compliance assistance sandbox application, which confirmed that a financial services company’s EWA program did not involve the offering or extension of “credit” as defined by section 1026.2(a)(14) of Regulation Z. The Bureau noted that various features often found in credit transactions were absent from the company’s program, and issued a two-year approval order, which provides the company 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. (Covered by InfoBytes here).

    The letter asserted that “[r]egardless of how they are structured, the essence of virtually all of these programs is that a third party advances funds to the consumer before the consumer’s regular payday and is repaid later in some fashion out of the paycheck. That is a loan. Methods to verify that the consumer has earned wages coming to them are simply a form of underwriting or security. . . . Similarly, the involvement of the employer or the use of payroll deduction does not mean that an advance is not a loan.” The letter raised several concerns, including that the Bureau’s position which views EWA products “as something other than loans leads to evasions of federal credit laws, such as [TILA], and of state laws, in particular usury laws.” Moreover, the letter stressed that this reasoning could have an impact on fair lending laws and “could be used in an attempt to weaken the scope of ECOA and its protections against discrimination against communities of color and other protected classes.” The letter stressed that asking for EWA products to be treated as credit does not mean they should not exist, but rather that the Bureau should examine fee-based EWA providers under its payday lending supervisory authority.

    Federal Issues CFPB Earned Wage Access Regulatory Sandbox No Action Letter TILA Regulation Z

  • DFPI signs MOUs with EWA companies

    State Issues

    On January 27, California’s Department of Financial Protection and Innovation (DFPI) announced that it entered into memorandums of understanding (MOUs) with five earned wage access (EWA) companies. According to DFPI, the MOUs represent the first agreements of their kind between fintechs and a state regulator, and are intended to “pave a path so [EWA] companies can continue operating in California, in advance of possible registration under the California Consumer Financial Protection Law [CCFPL], which took effect this year and defines the companies as newly covered financial services.” (Buckley Special Alert coverage on the CCFPL available here.) The five EWA companies represent two advance pay models: “an employer-based model which offers early access to wages in partnership with an employer as a benefit and a direct-to-consumer model which does not require employer participation.”

    Under the terms of the MOUs, the companies have agreed to deliver quarterly reports providing DFPI with a better understanding of their products and services, as well as the risks and benefits to consumers in the state. Reports will include information concerning “changes to consumer contracts, fees to consumers, consumer complaints, the average number of advances per month, duration before consumer payback, and the number of consumers making no repayment, partial repayments, or requesting cancellations or deferrals, among other stipulations.” The companies have also agreed to regular periodic DFPI examinations and are required to follow industry best practices, including by, among other things, (i) not offering any financial products that are “contingent on any tips the consumer chooses to make or does not make”; (ii) complying with TILA by limiting annual percentage rates on advanced funds to 36 percent; (iii) disclosing to consumers any potential fees that may be assessed prior to advancing the funds; (iv) limiting the amount of funds advanced to a consumer to no more than 50 percent of the consumer’s next paycheck; and (v) allowing consumers to revoke EFT authorization up to three days before a scheduled repayment date.

    As previously covered by InfoBytes, last November the CFPB issued an advisory opinion on EWA products, which clarified that “a Covered EWA Program does not involve the offering or extension of ‘credit’” under Regulation Z, which implements TILA. The Bureau noted that the “totality of circumstances of a Covered EWA Program supports that these programs differ in kind from products the Bureau would generally consider to be credit.”

    State Issues DFPI Fintech Earned Wage Access MOUs

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