Rule2025-00381
Truth in Lending (Regulation Z); Consumer Credit Offered to Borrowers in Advance of Expected Receipt of Compensation for Work
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Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 15, 2025
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Consumer Financial Protection Bureau (CFPB) is issuing this advisory opinion to rescind an advisory opinion it issued in November 2020 that described how one particular type of "earned wage" product does not involve the offering or extension of "credit" as that term is defined in the Truth in Lending Act and Regulation Z.
Full Text
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<title>Federal Register, Volume 90 Issue 9 (Wednesday, January 15, 2025)</title>
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[Federal Register Volume 90, Number 9 (Wednesday, January 15, 2025)]
[Rules and Regulations]
[Pages 3622-3624]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-00381]
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CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Part 1026
[Docket No. CFPB-2024-0032]
Truth in Lending (Regulation Z); Consumer Credit Offered to
Borrowers in Advance of Expected Receipt of Compensation for Work
AGENCY: Consumer Financial Protection Bureau.
ACTION: Advisory opinion rescinding previous advisory opinion.
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SUMMARY: The Consumer Financial Protection Bureau (CFPB) is issuing
this advisory opinion to rescind an advisory opinion it issued in
November 2020 that described how one particular type of ``earned wage''
product does not involve the offering or extension of ``credit'' as
that term is defined in the Truth in Lending Act and Regulation Z.
DATES: This advisory opinion is applicable January 15, 2025.
FOR FURTHER INFORMATION CONTACT: George Karithanom, Regulatory
Implementation & Guidance Program Analyst, Office of Regulations, at
202-435-7700 or at: <a href="https://reginquiries.consumerfinance.gov/">https://reginquiries.consumerfinance.gov/</a>. If you
require this document in an alternative electronic format, please
contact <a href="/cdn-cgi/l/email-protection#4a090c1a08150b29292f393923282326233e330a292c3a28642d253c"><span class="__cf_email__" data-cfemail="692a2f392b36280a0a0c1a1a000b0005001d10290a0f190b470e061f">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Advisory Opinion
A. Background
One major source of demand for consumer credit is derived from the
mismatch of when American workers receive compensation for their labor
and when they incur expenses. While there have long been sources of
credit for consumers to pay expenses in advance of receiving their
compensation, there are a number of new offerings that seek to provide
additional choices for consumers.
Instead of being paid daily or upfront, American workers generally
provide services before employers pay for those services some time
later--typically on a biweekly or semi-monthly wage cycle.\1\ Employers
have a strong incentive to delay payment, since these delays reduce
working capital needs. Nearly three-quarters of non-farm payroll
employees remain paid biweekly or even less frequently, and the
remainder are generally paid their wages weekly. To address liquidity
challenges, many consumers therefore turn to credit products, such as
payday loans, personal installment loans, and credit cards. In recent
years, American consumers have significantly expanded their use of
products sometimes marketed as ``earned wage access'' or ``earned wage
advance.'' \2\ As these paycheck advance products generally have
features that make them subject to the CFPB's jurisdiction, the CFPB
has sought to understand these and other products, particularly those
offered online, by engaging in ongoing monitoring of the market,
including, for example, collecting and analyzing data, engaging with
stakeholders (e.g., market participants, consumer groups, and States),
tracking and studying market developments, and conducting market
research, among other things.
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\1\ While the terms ``employer'' and ``employee'' are used
throughout, this advisory opinion applies more broadly to situations
where consumers receive payment for work performed.
\2\ A recent CFPB report describes rapid recent growth in one
part of this developing market. See CFPB, Developments in the
Paycheck Advance Market, at 3 (July 2024) (hereinafter 2024 Paycheck
Advance Report).
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While many of these products have similarities to payday loans,
there are important distinctions. The CFPB has found that there are two
emerging models of earned wage products: employer-partnered and direct-
to-consumer.
For ``employer-partnered'' products, providers contract with
employers to offer funds in amounts not exceeding accrued wages. Those
funds are recovered via one or more payroll deductions, lowering the
consumer's paychecks accordingly, with other recourse options generally
unavailable to the provider. In contrast, ``direct-to-consumer''
products provide funds to employees in amounts that are not as strictly
limited by accrued wages. Some of these products limit advances to an
amount estimated to be below accrued wages and do not consider other
factors. Others consider estimated accrued wages as one of several
factors when determining the amount to advance. Still others do not
expressly state that estimated accrued wages are a factor considered
despite being marketed as earned wage products. Regardless of the exact
model, funds are generally recovered via automated withdrawal
[[Page 3623]]
from the consumer's bank account,\3\ and generally without limit to the
provider's ability to seek further recourse as necessary.\4\
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\3\ This includes, without limitation, prepaid and payroll card
accounts.
\4\ As described, direct-to-consumer products lie outside the
scope of the ``wage advance'' (12 CFR 1041.3(d)(7)) and ``no cost
advance'' (12 CFR 1041.3(d)(8)) exclusions from the CFPB's 2017
Payday Rule. Employer-partnered products, however, may be (but are
not necessarily) within the scope of one exclusion or both, with
their revenue model particularly relevant to that determination. See
12 CFR 1041.3(d)(7)(ii)(A), (d)(8).
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Some of the differences between these two types of earned wage
products, however, are starting to erode. For example, some direct-to-
consumer providers are now connecting directly to payroll records and
recouping funds from payroll deductions, and ongoing State legal
developments may cause them to limit their recourse options as well.\5\
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\5\ See 2024 Paycheck Advance Report, supra note 2, n.7. Several
recently enacted State laws prohibit providers of earned wage
products, including direct-to-consumer products, from compelling
consumer repayment of earned wage amounts and fees through various
means, such as lawsuits or third-party debt collection. See, e.g.,
Mo. Rev. Stat. Sec. 361.749(5)(6) (2023); Wis. Stat. Sec.
203.04(2)(f) (2023); cf. Mont. Op. Att'y Gen., Vol. 59, Op. 2 (Dec.
22, 2023) (finding earned wage products do not meet the state law
definitions of ``consumer loan'' or ``deferred deposit loan'' when
they are ``fully non-recourse,'' among other criteria).
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Before the CFPB's market monitoring of these products intensified,
the CFPB issued an advisory opinion in November 2020,\6\ that described
how one particular type of earned wage product does not involve the
offering or extension of ``credit'' as that term is defined in the
Truth in Lending Act (TILA) and Regulation Z (2020 Advisory
Opinion).\7\ The opinion explained that an earned wage product is not
TILA or Regulation Z credit if it meets all of several identified
conditions, including: providing the consumer with no more than the
amount of accrued wages earned; provision by a third party fully
integrated with the employer; no consumer payment, voluntary or
otherwise, beyond recovery of paid amounts via a payroll deduction from
the next paycheck, and no other recourse or collection activity of any
kind; and no underwriting or credit reporting.\8\ The 2020 Advisory
Opinion was silent about whether earned wage products that do not meet
all of these conditions are credit under TILA and Regulation Z.\9\
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\6\ Truth in Lending (Regulation Z); Earned Wage Access
Programs, 85 FR 79404 (Dec. 10, 2020).
\7\ Regulation Z defines credit at section 12 CFR 1026.2(a)(14).
\8\ See 2020 Advisory Opinion, supra note 6, at 79405-06.
\9\ The opinion stated that it had no application to such
products. Id. at 79408 (``This advisory opinion applies solely to
the question of whether Covered EWA Programs (i.e., those meeting
all of the characteristics described in part I.B above) fall under
the definition of credit in section 1026.2(a)(14) of Regulation Z
identified above. This advisory opinion has no application to any
other circumstance, and it does not offer a legal interpretation of
any other provisions of law.'').
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In July 2024, the CFPB proposed an interpretive rule on this same
topic (2024 Proposed Interpretive Rule) and voluntarily sought public
comment. The comment period closed on August 30, 2024.
B. Legal Analysis
The CFPB is rescinding the 2020 Advisory Opinion for two
fundamental reasons: (i) its legal analysis is significantly flawed in
numerous respects; and (ii) it engendered substantial regulatory
uncertainty.
1. The 2020 Advisory Opinion's Legal Analysis Is Significantly Flawed
in Numerous Respects
Section 1026.2(a)(14) of Regulation Z defines ``credit'' as ``the
right to defer payment of debt or to incur debt and defer its
payment.'' \10\ TILA defines ``credit'' virtually identically as ``the
right granted by a creditor to a debtor to defer payment of debt or to
incur debt and defer its payment.'' \11\ However, TILA and Regulation Z
do not define ``debt.'' Regulation Z provides that undefined terms
``have the meanings given to them by state law or contract.'' \12\
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\10\ 12 CFR 1026.2(a)(14).
\11\ 15 U.S.C. 1602(f).
\12\ 12 CFR 1026.2(b)(3).
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The first analytical flaw of the 2020 Advisory Opinion is that its
consideration of the meaning of ``debt'' under state law was
insufficient. It did not mention the Regulation Z rule of construction
that undefined terms have the meanings given to them by state law or
contract. It only cited a portion of the definition of debt in a recent
edition of Black's Law Dictionary, and did not survey the definitions
of debt in state laws, or other relevant bodies of law, including
applicable circuit court case law on the definition of ``debt'' in TILA
and Regulation Z.\13\
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\13\ Pollice v. Nat'l Tax Funding, L.P., 225 F.3d 379, 410 (3d
Cir. 2000) (``Although [TILA] does not contain a definition of the
term `debt,' we believe the term as used in [TILA] should be
construed as it is defined in the FDCPA.'').
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Second, the 2020 Advisory Opinion inferred that the consumer does
not incur a liability when using the narrowly limited type of earned
wage product covered by the opinion, but did not sufficiently justify
the inference. The main rationale provided for the inference was that
this type of product ``functionally operates like an employer that pays
its employees earlier than the scheduled payday.'' \14\ The opinion did
not elaborate on what constitutes functional operation, or the
relevance of the fact that the employer is not literally paying the
employee's wages early.
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\14\ 85 FR 79404 at 79406 (emphasis added).
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Third, the 2020 Advisory Opinion did not consider all relevant
factors as part of the ``totality of the circumstances'' approach it
applied to determine what is ``credit.'' The opinion stated only that
``features often found in credit transactions are absent from'' this
type of product and that transactions involving this type of product
are ``[u]nlike many credit transactions. . . .'' \15\ The 2020 Advisory
Opinion, however, did not consider any of the features of wage advance
products commonly found in credit transactions, including a consumer's
receipt of funds, consumer repayment of those funds, and the wage
garnishment tool used to effectuate repayment. Nor did the 2020
Advisory Opinion explain how its ``totality of the circumstances''
approach derived from the definition of ``credit.''
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\15\ 2020 Advisory Opinion, supra note 6, at 79407 (emphasis
added).
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Fourth, the opinion's claim that it was supported by certain
statements in the 2017 Payday Rule is unpersuasive. The Payday Rule did
not make a determination as to whether earned wage products are credit,
stating only that some product constructs ``may not be'' credit. The
CFPB declined to perform the more detailed analysis necessary to come
to a considered conclusion on the boundaries of TILA and Regulation Z
at that time because the rulemaking was based on the CFPB's UDAAP
authority, not TILA and Regulation Z. Some earned wage products may not
be covered by the Payday Rule because of its ``wage advance'' and ``no
cost advance'' exclusions.\16\ However, these exclusions can only apply
to earned wage products to the extent that such products are TILA and
Regulation Z credit. As a result, the CFPB's earlier decision to
exclude certain earned wage product constructs from the Payday Rule has
no impact on the credit status of such products under TILA or
Regulation Z.
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\16\ See 12 CFR 1041.3(d)(7), 1041.3(d)(8).
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2. The 2020 Advisory Opinion Engendered Substantial Regulatory
Uncertainty
In the months and years following issuance of the 2020 Advisory
Opinion, it became increasingly evident that it failed to clarify the
status of earned wage products under TILA and Regulation Z. Indeed, in
2023, the U.S. Government Accountability Office issued a report
recommending that the CFPB clarify their status.\17\ This muddying of
the waters flowed directly from the extreme narrowness of the opinion.
Few if any of the products in the market at the time of or subsequent
to issuance fit the mold outlined by the opinion. As a result,
stakeholders were left to speculate about the CFPB's view about the
credit status of the many products actually being offered.
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\17\ U.S. Gov't Accountability Off., GAO-23-105536, Financial
Technology: Products Have Benefits and Risks to Underserved
Consumers, and Regulatory Clarity is Needed 36-37 (2023) (citing
industry requests for clarification). The CFPB has acknowledged the
need for clarification in this area. See, e.g., Letter from Rohit
Chopra, Dir., Consumer Fin. Prot. Bureau, to Michael Clements, Dir.
of Fin. Mkts. and Cmty. Inv., U.S. Gov't Accountability Off., (Feb.
13, 2023) in U.S. Gov't Accountability Off., GAO-23-105536, supra,
at 51; Letter from Seth Frotman, Acting General Counsel, Consumer
Fin. Prot. Bureau, to Beverly Brown Ruggia, N.J. Citizen Action, et
al., at 2 (Jan. 18, 2022).
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Worse still, the 2020 Advisory Opinion has been widely cited in
support of legal conclusions that it did not reach. For example, it has
erroneously been cited for the general propositions that no-fee earned
wage products are not credit,\18\ and that employer-partnered earned
wage products are also not credit.\19\
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\18\ See, e.g., Off. of the Att'y Gen., State of Ariz., Opinion
No. I22-005 (Dec. 16, 2022), available at <a href="https://www.azag.gov/sites/default/files/2022-12/I22-005.pdf">https://www.azag.gov/sites/default/files/2022-12/I22-005.pdf</a>.
\19\ See, e.g., ZayZoon, Comment Letter on Cal. Dep't of Fin.
Prot. and Innovation Notice of Proposed Rulemaking [PRO 01-21], at 4
(May 17, 2023), <a href="https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/08/46-PRO-01-21-ZayZoon-US-Inc.-5.17.23_Redacted.pdf">https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/08/46-PRO-01-21-ZayZoon-US-Inc.-5.17.23_Redacted.pdf</a>;
Innovative Payments Ass'n, Comment Letter on Cal. Dep't of Fin.
Prot. and Innovation Notice of Proposed Rulemaking [PRO 01-21], at 4
(May 11, 2023), <a href="https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/08/10-PRO-01-21-Innovative-Payments-Association-5.11.23_Redacted.pdf">https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/08/10-PRO-01-21-Innovative-Payments-Association-5.11.23_Redacted.pdf</a>.
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In addition, some regulatory uncertainty may have resulted from the
near-contemporaneous issuance of an ``Approval Order'' that gave one
provider a temporary safe harbor from liability under TILA and
Regulation Z with respect to a specific product that did not satisfy
all the conditions that the 2020 Advisory Opinion identified as taking
such a product outside the reach of TILA and Regulation Z.\20\ The 2020
Advisory Opinion applied only to products that had all of the numerous
characteristics identified above, including that they were free to
consumers. In contrast, the Approval Order encompassed earned wage
transactions in connection with which the consumer incurred fees.\21\
However, it was never of general interpretative applicability,\22\ and
was terminated even before its temporary status expired.\23\
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\20\ See Consumer Fin. Prot. Bureau, Payactiv Approval Order, at
5 (Dec. 30, 2020), <a href="https://files.consumerfinance.gov/f/documents/cfpb_payactiv_approval-order_2020-12.pdf">https://files.consumerfinance.gov/f/documents/cfpb_payactiv_approval-order_2020-12.pdf</a>.
\21\ See id.
\22\ See id. at 4 n.15.
\23\ See Consumer Fin. Prot. Bureau, Order to Terminate Sandbox
Approval Order (June 30, 2022), cfpb_payactiv_termination-
order_2022-06.pdf.
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II. Regulatory Matters
This is an advisory opinion issued under the CFPB's authority to
interpret TILA and Regulation Z, including under section 1022(b)(1) of
the Consumer Financial Protection Act of 2010, which authorizes
guidance ``as may be necessary or appropriate to enable the Bureau to
administer and carry out the purposes and objectives of the Federal
consumer financial laws. . . .'' \24\ By operation of TILA section
130(f), no provision of TILA sections 130, 108(b), 108(c), 108(e), or
section 112 imposing any liability would apply to any act done or
omitted in good faith in conformity with this advisory opinion,
notwithstanding that after such act or omission has occurred, the
advisory opinion is amended, rescinded, or determined by judicial or
other authority to be invalid for any reason.\25\
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\24\ 12 U.S.C. 5512(b)(1).
\25\ 15 U.S.C. 1640(f).
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The CFPB has determined that this advisory opinion would not impose
any new or revise any existing recordkeeping, reporting, or disclosure
requirements on covered entities or members of the public that would be
collections of information requiring approval by the Office of
Management and Budget under the Paperwork Reduction Act.\26\
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\26\ 44 U.S.C. 3501-3521.
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Pursuant to the Congressional Review Act,\27\ the CFPB will submit
a report containing this advisory opinion and other required
information to the United States Senate, the United States House of
Representatives, and the Comptroller General of the United States prior
to the rule's published effective date. The Office of Information and
Regulatory Affairs has designated this advisory opinion as not a
``major rule'' as defined by 5 U.S.C. 804(2).]
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\27\ 5 U.S.C. 801-808.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2025-00381 Filed 1-14-25; 8:45 am]
BILLING CODE 4810-AM-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.