How the CFPB Is Using Interpretive Rules to Expand Regulatory Requirements for Innovative Consumer Financial Products; Part Two—Earned Wage Access

Today's podcast, which repurposes a recent webinar, is the conclusion of a two-part examination of the CFPB's use of a proposed interpretive rule, rather than a legislative rule, to expand regulatory requirements for earned wage access (EWA) products. Part One, which was released last week, focused on the CFPB's use of an interpretive rule to expand regulatory requirements for buy-now, pay-later (BNPL) products. We open with a discussion of EWA products, briefly describing and distinguishing direct-to-consumer EWAs and employer-based EWAS. We review some of the consumer-friendly features that are common to EWAs, including that there is no interest charged and they are typically non-recourse, and discuss expedited funding fees and tips, neither of which is required to access EWAs. We also provide an overview of how some states have attempted to regulate (or specifically not regulate) EWAs. We then transition into a discussion of the CFPB's history with EWA products, including the Bureau's advisory opinion in 2020 that took a markedly different approach to EWAs, essentially taking the position that a certain subset of EWAs fell outside of the definition of "credit" under the Truth in Lending Act (TILA) and Regulation Z. The CFPB's proposed interpretive rule, on the other hand, states that EWAs are "credit" and that expedited funding fees and optional tips, in most circumstances, are part of the finance charge that must be disclosed under TILA and Regulation Z. We explore the Bureau's reasoning in support of these conclusions and some of the compliance difficulties that the proposed interpretive rule would create were it to go into effect as written. Since this recording took place, the CFPB has posted over 148,000 comment letters that it has received on the proposed interpretive rule, many of which are from consumers who use EWAs to access a portion of their earned wages prior to their scheduled payday and are concerned that the proposed interpretive rule could limit or jeopardize their access to EWAs. The high number of responses demonstrates the level of interest that the CFPB's proposed interpretive rule has generated. We conclude with thoughts about vulnerabilities with both the proposed interpretive rule for EWAs and the interpretive rule for BNPLs that we described in Part One of this podcast, as well as how these rules could potentially be challenged. One notable development that has occurred since our recording is that the Financial Technology Association has filed a complaint asking a D.C. federal court to strike down the interpretive rule for BNPLs because of the alleged violations of the Administrative Procedure Act that we discuss in this episode. Alan Kaplinsky, former Practice Leader and Senior Counsel in Ballard Spahr's Consumer Financial Services Group, moderates today's episode, and is joined by John Culhane and Michael Guerrero, Partners in the Group, and John Kimble, Of Counsel in the Group.