By approving a framework regulating earned wage access (EWA), California contributes to a state-by-state patchwork of EWA regulation. With the future of federal action uncertain, EWA providers will have to navigate this patchwork, which is likely to grow as additional states enact their own regulations, possibly looking to California as a model.
In July 2024, the Consumer Financial Protection Bureau proposed a new interpretive rule that would subject EWA products (products that allow workers to access income they have already earned prior to their typical paydays) to the Truth in Lending Act (TILA) and Regulation Z. In addition to TILA and Regulation Z requirements, the interpretive rule would enable state enforcers, given their Consumer Financial Protection Act authority, to bring actions based on the CFPB’s interpretation, independent of the judgments of their state’s regulators.
The proposed interpretive rule, which seeks to replace a November 2020 advisory opinion that reached opposite conclusions, would seriously threaten the viability of EWA business models and raise critical questions about how EWA is perceived by consumers and others who view EWA as a better alternative to traditional payday loans.
However, given the results of this month’s federal elections, it is uncertain whether the proposed interpretive rule will ever be adopted. And, if the interpretive rule is finalized during the Biden administration’s lame duck period, it could be rescinded or amended by the incoming administration or overturned through the Congressional Review Act process.
In October 2024, California approved a new Department of Financial Protection and Innovation framework regulating EWA. California’s approach is more lenient than many expected: exempting EWA providers from California Financing Law (CFL) registration requirements and CFL rate caps, despite clarifying that EWA advances are in fact loans under the CFL. Instead, EWA providers will have to register under the state’s Consumer Financial Protection Law by February 15, 2025 and will be subject to annual reporting requirements and regular examinations.
By adopting these new requirements, California joins a growing number of states that have implemented new regulatory regimes for EWA.
On the more stringent end of the spectrum is Connecticut, which has also classified EWA products as loans but, unlike California, has determined that providers are subject to the state’s lender licensing and rate cap requirements.
On the less restrictive end are Kansas, Missouri, Nevada, and South Carolina, which have adopted EWA-specific licensing and registration regimes that resemble California’s but have clarified that EWA products are not loans.
In the middle is Wisconsin, which has also adopted license requirements for EWA providers but has remained agnostic with respect to whether EWA products are loans and whether EWA fees and gratuities are finance charges.
The EWA market has garnered attention for not only its potential to enhance financial flexibility for consumers but also concerns raised by consumer advocates. Critics have expressed apprehension regarding the fees associated with EWA, particularly those charged through a direct-to-consumer model, independent from employers. As the regulatory landscape continues to evolve, EWA stakeholders should remain vigilant about the implications of changes on both the state and federal level.
Even if the incoming administration reverts back to the approach taken in the CFPB’s 2020 advisory opinion, EWA providers will need to navigate the complex state-by-state patchwork of EWA regulation outlined above. Further, the regulatory framework established in California may serve as a model for additional states grappling with how to approach the EWA industry. EWA providers should anticipate further scrutiny from state authorities and adapt their business strategies to align with emerging standards and consumer expectations.
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