As the Trump Adminstration has slashed staffing at the Consumer Financial Protection Bureau and pulled back from oversight of emerging payments plays, states have stepped up their regulatory purview.

That’s abundantly clear to Avy Mallik, a Morrison Foerster attorney who previously helped develop federal consumer protection policies as the director of fintech policy for the House Financial Services Committee, and later guided regulatory oversight as general counsel for the California Department of Financial Protection and Innovation.

In an interview last month, Mallik discussed what payments and fintech companies should expect in terms of regulation and enforcement as states step up, and the federal government steps back. In particular, earned wage access providers and buy now, pay later companies are likely to see oversight continue to evolve, he explained in the July 31 interview.

Some states, including Indiana and Utah, have passed laws stating that earned wage access isn’t credit and therefore need not abide laws that pertain to lending. Those approaches were at odds with a prior CFPB policy under the Biden administration that said laws, such as the Truth in Lending Act, should apply to EWA services. Other states, including California and Connecticut, have pursued a stricter tack on oversight more akin to the now discarded Biden era policy.

There have also been states, including New York and Illinois, that have passed laws to institute new protections for consumers who use BNPL financing.

PAYMENTS DIVE: An earned wage access bill (HR 9330) was passed by the House Financial Services Committee in June with bipartisan support, and the CFPB is considering an updated EWA policy. Which effort is likely to make more progress this year?

AVY MALLIK: It is very difficult to imagine an earned wage access specific legislation making it across the finish line because of the timeframe, stepping into the August recess. This bill would need to be further moved on the House side; there'd need to be a serious effort on the Senate side. Frankly, anything can happen — bills can be put into other larger omnibus bills — but more work, likely, will need to be done. [The current two-year congressional session ends this year.]

You do mention the CFPB and what has happened there — there's been a shifting regulatory landscape, as the record shows ... last year, further work from the CFPB created parameters that concluded that certain EWA programs do not constitute credit. At the same time, it is a very different landscape in the state context. 

What’s your take on what the states’ new EWA laws and rules will mean for companies and consumers?

I think everyone wants clear rules of the road. Providers of these products want to make sure that they're operating in a level playing ground. That there’s an understanding of what regulators are looking for and making sure that they’re in compliance. Consumers also want to have a framework that they can operate in, and they can expect that their end wage access products that they're using either through their employer or directly to the from the provider is clear.

Do your corporate EWA clients prefer a state patchwork of oversight or one federal regime?

I think my clients are very thoughtful. I think stakeholders I've spoken with are very thoughtful. They're unpacking all these sort of variables to see how to structure these offerings in a way that serves consumers, while also sort of keeping tabs on how state and federal regulators are looking at such things as fees and tips and recourse versus non-recourse.

How about buy now, pay later financing — what do you see as the regulatory future for it?

A dynamic very similar to earned wage access also exists in buy now pay later, which is, with a perception of federal retrenchment, states needing to either use their available powers, or create new powers to provide regulation, either through a supervisory regime or, when needed, they will take enforcement actions. I think you're going to see more states be more active.

Buy now, pay later, it is a somewhat different story because, for instance, in California, buy now pay later products have been assessed over time to sit within the California Financing Law framework. That may continue. Other states are maybe farther behind, but are now looking to pull them into their non-bank financing licensing regimes or create bespoke licensing architectures, but it is a moment where states are going to be active potentially ... there is more mainstream interest in this type of consumer credit channel. It’s no longer a niche sort of fintech product.

What will enforcement look like under these policies?

Do I foresee a ramping up? Part of me says, looking at how the bureau has worked the last year and a half, it’s unlikely. But then again, sometimes when there are challenges, when consumers may be harmed, or there's more of an macroeconomic factor in place, you will see a ramping up, but I do think that enforcement pressure, if it is to increase, will come from the states, especially on fintech products like we're discussing.

Are American consumers in these financial areas adequately protected at the moment?

Hopefully, we will have continued conversations. Fintechs and other service providers are getting clarity so that they can provide their products in a compliant manner, and people are getting access to these products while having strong consumer protections.