Federal: Joint Industry Comment Letter to House Financial Services Committee on Earned Wage Access

August 13, 2024

The Honorable Patrick McHenry
Chairman
Committee on Financial Services
U.S. House of Representatives
Washington, DC 20515

The Honorable Maxine Waters

Ranking Member

Committee on Financial Services
U.S. House of Representatives
Washington, DC 20515

Dear Chairman McHenry and Ranking Member Waters,

As providers of Earned Wage Access (EWA) products and services nationwide, we write to express our concerns regarding the Consumer Financial Protection Bureau's (CFPB) proposed 2024 Paycheck Advance Interpretive Rule, which was issued by the CFPB on July 18, 2024, and published in the Federal Register on July 31, 2024 (the Interpretive Rule).

The CFPB's most recent Interpretive Rule presents a dramatic reversal from the Bureau’s prior guidance on EWA products, with far-reaching consequences and negative impacts for consumers and industry. Under a 2020 Advisory Opinion, the CFPB concluded that EWA services featuring specific characteristics, such as being nonrecourse (meaning there is no repayment obligation), were inconsistent with the definition of “credit” for purposes of Regulation Z, which would require there to be a debt (meaning there must be a repayment obligation). Despite this conclusion, with limited industry outreach and input, minimally publicly disclosed research, and a limited notice and comment period, the CFPB is now moving forward with an attempt to force EWA services into an existing lending regulatory framework that, in practice, would place unnecessary and inapplicable requirements on EWA providers. In turn, this could decrease the access that users across the country have to EWA services and undercut the financial inclusion that EWA providers seek to offer.

EWA provides critical consumer options and has proven to be a significant financial security tool for workers who need cash for unexpected expenses between paychecks. Without EWA, it often takes weeks for employees to realize the benefit of picking up an extra shift to pay their bills, but with EWA, they can access those earned wages immediately. While earned wage access products and services offer significant value to workers who want the financial freedom to access liquidity when needed, EWA is also popular with employers because it can reduce employee turnover and absenteeism and has become an essential tool to recruit and retain workers in the competitive labor market.  

There are several models and providers of EWA across the country, but we all share a few important characteristics. All the undersigned EWA providers offer a reasonable no-cost option, Further, all EWA is based on wages that have already been earned. Workers can access only the money they have already worked for and earned. In this way, EWA is functionally equivalent to accessing funds in an asset account, granting access to earned but unpaid income just like an ATM grants access to funds in a bank account. In this way, EWA similarly does not resemble credit. No EWA provider charges interest or late fees because our product is not a loan.  All EWA products are also non-recourse to the user (meaning there is no user repayment obligation). In the case of employer-based providers, if an employer fails to make payroll, the EWA provider assumes that risk, not the worker who has already been paid. There is also no requirement to repay, no collection activity, and no credit bureau reporting non-payment.

Simply put, EWA is not credit and should not be regulated as such. States have weighed in on best practices for regulating EWA products and services throughout the country while promoting financial inclusion and innovation. At least five states have enacted carefully thought-out legislation that establishes clear standards for responsible EWA services, reflecting the nuances and optionality of the EWA industry while protecting consumers. Similarly, and under the leadership of Rep. Bryan Steil, this Committee passed the first federal framework for regulating EWA: the Earned Wage Access Consumer Protection Act (H.R.7428), which would require practical consumer protections and regulatory clarity on EWA services.

We believe a transparent, inclusive, and open process that considers all stakeholders benefits everyone—including consumers, industry, the market, and regulatory agencies. In our view, the proposed Interpretive Rule falls far short of this important goal.

Rather than developing a solid framework of rules that would meet the CFPB’s mission of consumer protection and protecting financial markets, the Interpretive Rule seeks to shoehorn technology that operates fundamentally differently into decades-old rules. This will significantly affect further development in the EWA market and negatively impact the workers who have relied on EWA products and services as a safe and less costly alternative to meet their financial needs.

EWA products and services provide critical optionality for consumers to fit their needs precisely because of the product features that distinguish them from various forms of credit. EWA users currently benefit from a product they do not have to repay and is available at no required cost. For example, nearly every provider receives only optional fees, if any, from users for optional services such as expedited delivery fees or voluntary tips, which are entirely within the user’s control and are not conditions of the user’s access to EWA services. Treating EWA as credit potentially risks some of the current practices that most benefit consumers because it will disincentivize providers from offering the product features noted above and thus harm the responsible financial services options available to consumers. Thus, it is our view that the CFPB should be working to differentiate responsible EWA products, not conform them to credit.

Itis also unfortunate that the Bureau is attempting to propose substantive changes on a topic it is still seeking to understand without direction from Congress. That is why we believe the proposed Interpretive Rule will lead to more regulatory confusion for this new industry and our consumers, not less.

For the reasons mentioned above, as industry leaders in earned wage access, were main concerned that the CFPB’s rushed Interpretive Rule will have negative consequences for both industry and consumers. We appreciate your attention to our concerns. If you have any questions or wish to discuss this letter further, please contact Ian P. Moloney, SVP- Head of Policy and Regulatory Affairs, at ian@fintechcouncil.org.

Sincerely,

American Fintech Council

Brigit

Cleo

Cross River

DailyPay

EarnIn

MoneyLion

Payactiv

Portage Bank

Wagestream

ZayZoon

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