Proposed rule removes optionality and jeopardizes access to critical financial stability resources for millions of Americans

Washington, D.C. (August 30, 2024) – The American Fintech Council (AFC), the premier industry association representing responsible fintech companies, innovative banks, and the largest number of earned wage access (EWA) providers, submitted a comment letter to the Consumer Financial Protection Bureau (CFPB) Notice of Proposed Interpretive Rule concerning Paycheck Advance products more commonly referred to as Earned Wage Access (EWA). Among many arguments addressed in their letter, AFC highlighted the significant harm the proposal would cause to consumers by wrongly misclassifying EWA products as credit, overturning previous CFPB guidance. The rulemaking also suffers from a procedurally flawed process that upends settled market and regulatory expectations regarding agency engagement.

“Simply put, responsible EWA is not credit, and should not be regulated as such. For nearly four years, earned wage access providers have built their businesses around the CFPB’s own guidance, enabling innovators to provide millions of Americans with safe, convenient access to wages they have already earned,” said Phil Goldfeder, Chief Executive Officer of AFC. “This proposed rule upends the Bureau’s established precedent and jeopardizes financial flexibility and stability for millions of consumers. AFC strongly objects to this proposed rule and calls on the CFPB to engage with legislators, industry partners, and EWA users to develop legislation that protects consumers while preserving access to this vital financial tool.”

Further, AFC asserts the CFPB's rule is procedurally flawed, as it improperly classifies the new rule as interpretive rather than legislative, thus bypassing the standard rulemaking process required for new regulations. In their letter, AFC warned that implementing the rule would have detrimental effects on consumers, particularly those who rely on EWA services for short-term financial stability. It would also impose significant compliance costs on EWA providers, especially smaller companies, potentially driving them out of business and reducing competition in the market.

EWA products are fundamentally different from loans, as they do not involve interest, repayment obligations, or credit checks. Instead, they provide avital source of liquidity for workers without the risks associated with traditional lending, such as debt cycles and credit penalties. AFC asserts that the CFPB's proposed rule would disrupt the EWA market by imposing an inappropriate regulatory framework that fails to recognize the unique characteristics of EWA products.

“Consumers recognize EWA products as distinct from lending products, and the interpretive rule will lead to a reduction in consumer choice, needless customer confusion, the elimination of fair competition and innovation, higher costs and less financial freedom for consumers, and the likely shuttering of smaller providers,” wrote Ian P. Moloney, SVP, and Head of Policy and Regulatory Affairs in AFC’s Letter to CFPB. “We urge the CFPB to withdraw its Proposed [Interpretive] Rule and to instead defer to the ongoing, robust considerations of the appropriate regulation of EWA products that are already underway in legislative branches at both the state and federal levels.”

A standards-based organization, AFC is the premier trade association representing the largest financial technology (Fintech) companies and innovative BaaS banks. AFC’s mission is to promote a transparent, inclusive, and customer-centric financial system by supporting responsible innovation in financial services and encouraging sound public policy. AFC members foster competition in consumer finance and pioneer products to better serve underserved consumer segments and geographies.

The AFC’s full letter is available here.

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