Demystifying the CFPB Earned Wage Access Approval Order
On December 30, 2020, the Consumer Financial Protection Bureau (CFPB) issued a follow-up order in response to its November advisory opinion.
This advisory outlines a specific set of circumstances for certain EWA providers (who were at risk of being designated credit providers) to follow so as not to be considered lenders.
The CFPB’s guidance indicates that certain EWA programs utilizing “employer-facilitated payroll deductions” may be considered credit if they do not account for several new compliance considerations.
Specifically…
For a wage deduction program vendor to obtain a credit safe harbor:
- The deduction program cannot use debiting for repayment in any state (vs DailyPay, which does not rely on debiting)
- The deduction program cannot go over 60% access (vs DailyPay, which does not require wage deductions and can provide access to full net pay)
- The deduction program cannot be a legacy program (only certain programs and states included in safe harbor)
And, any changes to the program would require additional government approval(s).
Note: DailyPay is not a wage deduction program.
The follow-up order generally validates the employer-based, non-recourse approach pioneered and championed for years by DailyPay.
This is the first time a federal agency has intentionally excluded EWA business models that rely on debiting for repayment, and suggests the practice is typical of “credit transactions.”
You’re probably wondering…why the CFPB issued a follow-up order on Earned Wage Access?
A specific provider (PayActiv) requested this follow-up order because it was concerned its product is non-compliant.
Under the CFPB policy, providers with such concerns can request clarity on specific points that deal with regulatory uncertainty.
It’s important to note, the follow-up 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 did not request an Approval Order. Here’s why…
DailyPay has never used this wage deduction method & does not need to rely on such exemptions. These exemptions only apply to providers that could be deemed to be extending credit.
DailyPay has never and will never require any form of employee payback and thus does not fall within the purview of either CFPB opinion.
Still wondering what “CFPB-Approved Earned Wage Access” means?
When you see “CFPB-Approved Earned Wage Access” please note that it DOES NOT grant an approval of any specific model or vendor.
It simply approved this vendor’s entry into a “regulatory sandbox.”
What you really need to know about this order
Key Takeaway #1: Wage deductions continue to be illegal at the state level in many states
Key Takeaway #2: Utilizing debiting as a form of EWA payback is likely to be considered an extension of credit. Debiting consumer bank accounts continues to be a dangerous and strongly disfavored practice, and is typical of a “credit transaction.”
Key Takeaway #3: Vendor “no credit” safe harbors do NOT protect employers and clients from wage and hour risk and compliance.
DailyPay continues to be the compliance gold-standard in the market.
Visit dailypay.com to learn more.
