As we previously predicted, the Consumer Financial Protection Bureau (CFPB) has asked the Supreme Court to reverse the recent Fifth Circuit decision finding that the agency’s funding is unconstitutional. In a petition for certiorari filed less than a month after the Fifth Circuit decision, the CFPB asks the Supreme Court to hear the case
In a consequential decision, a panel of the Fifth Circuit Court of Appeals last week ruled that the US Consumer Financial Protection Bureau (“CFPB”) is unconstitutionally funded and that its promulgation of a Payday Lending Rule—and presumably all of its actions—are therefore invalid. Read our summary of the opinion and discussion of its likely implications
In February 2022, a legal opinion issued by the California Department of Financial Protection and Innovation (“DFPI”) concluded that employer-provided earned wage access (“EWA”) transactions are not loans under the California Financing Law and California Deferred Deposit Transaction Law. The DFPI’s legal opinion stands to provide significant clarity to the EWA industry and should encourage the continued adoption of earned wage access as a solution to employees’ needs for low-cost temporary liquidity.
Before diving into the DFPI legal opinion, we briefly remind readers of the basic structure of EWA programs. Earned wage access is a service that allows workers to obtain wages that they have earned, but have not yet been paid, prior to the worker’s regularly scheduled payday. Although the exact structure of each program differs, EWA programs generally fall into two broad categories:
- Direct To Consumer Models are offered directly to workers, without the employer’s involvement. Any eligible worker can access EWA from a direct to consumer model, as the worker’s employer offering the service is not a prerequisite. Because direct to consumer models do not integrate with employers, recoupment of EWA advances is typically effected through a single-use automated clearinghouse transaction from the employee’s personal bank account on the employee’s payday.
- Employer Integrated Models involve the EWA provider entering into a contract with an employer to offer the service as an employee benefit to the employer’s employees. An EWA provider using the employer integrated model may integrate with the employer’s payroll and time card systems to receive data about the amount of earned wages that an employee has accrued as of a certain date. Employer integrated programs typically fund an earned wage advance through the employer’s payroll system and then recoup the advance through a payroll deduction facilitated by the employer on the employee’s next regular payday.
Some EWA providers charge fees for use of the service, which are typically either flat transaction fees or “participation” fees for use of the program.
As an innovative and emerging product, EWA programs present novel financial regulatory issues. The most significant of these issues is the status of an EWA transaction as a non-credit transaction. …
Continue Reading California DFPI Affirms Employer-Integrated Earned Wage Access Is Not a Loan
A district court has dismissed a challenge to the Consumer Financial Protection Bureau’s (“CFPB”) repeal of the underwriting provisions of its 2017 payday rulemaking. The CFPB’s payday lending rule has a long and tortured history. First promulgated in 2017, the rule had two main prohibitions—a prohibition on making payday loans without assessing a borrower’s ability…