Dive Brief:

• The Consumer Financial Protection Bureau said in an advisory opinion published Tuesday in the Federal Register that earned wage access products offered as part of an “employer-partnered” arrangement aren’t loans under the Truth in Lending Act.
• The bureau also formally rescinded a July 2024 Biden administration proposed rule that would have treated most EWA payments as loans subject to the federal lending law.
• The National Consumer Law Center noted in a statement Monday that six federal court decisions this year have found EWA products to be loans. “Courts have seen through payday loan apps’ deceptive claims,” Lauren Saunders, the center’s associate director, said in the statement. “Declaring that loans are not loans doesn’t make them safe for people living paycheck to paycheck.” 

Dive Insight:

In the opinion, the bureau articulated several features of a “covered EWA” product that’s not a loan. The amount involved must not exceed a worker’s wages; a provider must use payroll deduction through an employer; a provider must represent that it has no legal claim or remedy for not being repaid and won’t report to a credit agency; and it must not assess an employee’s credit risk.

The bureau said that neither the Truth in Lending Act, nor its implementation mechanism, Regulation Z, define the term “debt” and that covered EWA services don’t give workers a right to incur debt and defer payment. That means the covered EWA product is not credit, according to the bureau’s analysis.

“These products are not loans, and we appreciate the CFPB’s recognition of that, along with its withdrawal of a flawed 2024 proposed interpretive rule that previously mischaracterized EWA products,” Penny Lee, chief executive of the Financial Technology Association, said in a statement. 

The association’s members include EWA providers Chime Financial, DailyPay and EarnIn.

The bureau did not discuss direct-to-consumer, non-covered EWA products in the opinion. It said that nothing in the opinion should be construed to cover other types of EWA products.

“The CFPB continues to seek stakeholder feedback and evaluate whether it should take further legal steps with respect to EWA products,” the bureau said in its advisory opinion. The CFPB also said that EWA providers may seek clarification from the agency about whether their tipping practices “rise to the level of imposing finance charges.”

Tal Clark, the CEO of suburban Atlanta-based EWA provider Instant Financial, said in a Monday email that industry “clarity” from the CFPB opinion will “accelerate adoption among Fortune 500 and other large companies, making EWA mainstream and improving financial wellness for millions.”

The CFPB’s regulatory posture toward the EWA industry has zig-zagged markedly over the Biden and Trump presidential administrations.

In November 2020, under the first Trump administration, the CFPB issued an advisory opinion that determined that certain earned wage access offered through employers without fees wouldn’t be considered loans.

The Biden administration rescinded that rule. Additionally, in July 2024, the bureau proposed an interpretive rule that would have subjected EWA payments to federal lending laws, a move that the industry criticized.

A CFPB report last year estimated that the market for employer-provided EWA programs increased from $3.2 billion across 18.6 million transactions in 2018 to $22.8 billion from 214 million transactions in 2022. “The U.S. EWA market is set to expand by about 300% between 2024 and 2034,” the bureau said in its advisory opinion Tuesday, citing a report last month from research firm Market.us. 

The American Fintech Council – which includes EWA firms DailyPay, MoneyLion and ZayZoon as members – called the CFPB’s opinion “a constructive first step in a statement Monday.

“Importantly, the CFPB recognizes key features of EWA that distinguish it from credit, including a recognition that optional expedite fees or voluntary tips do not constitute finance charges,” the council’s chief policy officer, Ian P. Moloney, said in the statement.

The opinion “properly and explicitly clarifies the core principles of EWA, accurately defining it as a product that allows workers early access to wages they’ve earned for work they’ve already performed,” Moloney said in a statement. 

The bureau said it was withdrawing the 2024 proposed rule partially because of “at least five” federal court opinions that relied on it. “These opinions have no real bearing on this advisory opinion,” the bureau said, because it has withdrawn the proposed rule and “officially rejected the interpretations advanced in it.”