In the United States, as much as 75% of the workforce is paid biweekly or less often. For many workers, such a delay makes paying bills on a timely basis a challenge.
In recent years, this point of pain has resulted in financial institutions providing paycheck advances before payday (“Earned Wage Access” or “EWA”). Earned Wage Access products are offered through two primary models: employer-partnered and direct-to-consumer. While employers sometimes make these fee-free, some Earned Wage Access products come with fees for expedited service, subscription fees, or requested “tips.”
In response, the Consumer Financial Protection Bureau (“CFPB”) proposed an interpretive rule explaining that many (but not all) Earned Wage Access products are consumer loans subject to the Truth in Lending Act (“TILA”). The proposed rule explains how existing law applies to EWA, and replaces a 2020 advisory opinion that addressed a very specific paycheck advance product that is not common. The proposed rule makes clear that many paycheck advance products – whether provided through employer partnerships or marketed directly to consumers – trigger obligations under TILA. Specifically, the CFPB’s proposed rule makes clear that:
- Many EWA costs are finance charges: “Tips” and expedited delivery fees are finance charges under TILA. However, when EWA is truly free to the employee, there are no finance charges.
- Borrowers must receive key disclosures: Among other requirements, earned wage lenders must provide workers with appropriate disclosures about the finance charges.
The proposed rule is unlikely to have an impact on employer obligations. However, companies that partner with earned wage lenders may want to inquire about the fees the lenders charge. Employers who partner with earned wage lenders especially should take interest in whether lenders charge consumers any fee, which would likely be considered a finance charge under the current interpretive rule. If so, the employer should ask the lender if they are providing the required notice. Even if the notice is not the employer’s obligation, knowing that it is being provided will avoid one more potential headache!
The CFPB encourages the public to submit comments on the proposed rule to inform whether additional clarifications are needed. Comments will be accepted until August 30, 2024.
Brody and Associates regularly advises management on complying with the latest local, state and federal employment laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560
