Truth in Lending (Regulation Z); Consumer Credit Offered to Borrowers in Advance of Expected Receipt of Compensation for Work

CONSUMER FINANCIAL PROTECTION BUREAU <CFR>12 CFR Part 1026</CFR> <DEPDOC>[Docket No. CFPB-2024-0032]</DEPDOC> <SUBJECT>Truth in Lending (Regulation Z); Consumer Credit Offered to Borrowers in Advance of Expected Receipt of Compensation for Work</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Consumer Financial Protection Bureau. <HD SOURCE="HED">ACTION:</HD> Notice of proposed interpretive rule; request for comment. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Consumer Financial Protection Bureau (CFPB) is charged with promoting competition and innovation in consumer financial products and services. After careful study of emerging offerings in the paycheck advance marketplace, including those marketed as “earned wage advances” and “earned wage access,” the CFPB is proposing this interpretive rule to help market participants determine when certain existing requirements under Federal law are triggered. The proposed interpretive rule would also address certain costs that are in substantial connection with extensions of such credit, such as expedited delivery fees and costs marketed as “tips.” </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received by August 30, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> You may submit comments, identified by Docket No. CFPB-2024-0032, by any of the following methods: • <E T="03">Federal eRulemaking Portal: https://www.regulations.gov.</E> Follow the instructions for submitting comments. • <E T="03">Email: 2024-Paycheck-Advance-Interpretive-Rule@cfpb.gov.</E> Include Docket No. CFPB-2024-0032 in the subject line of the message. • <E T="03">Mail/Hand Delivery/Courier:</E> Comment Intake—2024 Paycheck Advance Interpretive Rule, c/o Legal Division Docket Manager, Consumer Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552. Because paper mail in the Washington, DC area and at the CFPB is subject to delay, commenters are encouraged to submit comments electronically. <E T="03">Instructions:</E> The CFPB encourages the early submission of comments. All submissions must include the document title and docket number. In general, all comments received will be posted without change to <E T="03">https://www.regulations.gov.</E> All submissions, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Proprietary information or sensitive personal information, such as account numbers or Social Security numbers, or names of other individuals, should not be included. Submissions will not be edited to remove any identifying or contact information. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> George Karithanom, Regulatory Implementation & Guidance Program Analyst, Office of Regulations, at 202-435-7700 or at: <E T="03">https://reginquiries.consumerfinance.gov/.</E> If you require this document in an alternative electronic format, please contact <E T="03">CFPB_Accessibility@cfpb.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> 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. <SU>1</SU> <FTREF/> 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 third-party 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.”  <SU>2</SU> <FTREF/> 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 T="03">e.g.,</E> market participants, consumer groups, and States), tracking and studying market developments, and conducting market research, among other things. <FTNT> <SU>1</SU>  While the terms “employer” and “employee” are used throughout, the proposed interpretive rule would apply more broadly to situations where consumers receive payment for work performed. </FTNT> <FTNT> <SU>2</SU>  A CFPB report describes rapid recent growth in one part of this developing market. <E T="03">See</E> CFPB, <E T="03">Developments in the Paycheck Advance Market,</E> at 3 (July 2024) (hereinafter <E T="03">2024 Paycheck Advance Report</E> ). </FTNT> 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 third-party provider. In contrast, “direct-to-consumer” products provide funds to employees in amounts that they estimate to be below accrued wages; funds are then recovered via automated withdrawal from the consumer's bank account, <SU>3</SU> <FTREF/> and generally without limit to the provider's ability to seek further recourse as necessary. <SU>4</SU> <FTREF/> <FTNT> <SU>3</SU>  This includes, without limitation, <E T="03">e.g.,</E> prepaid and payroll card accounts. </FTNT> <FTNT> <SU>4</SU>  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. <E T="03">See</E> 12 CFR 1041.3(d)(7)(ii)(A), (d)(8). </FTNT> Some of the significant 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. <SU>5</SU> <FTREF/> <FTNT> <SU>5</SU>   <E T="03">See 2024 Paycheck Advance Report, supra</E> note 2, at 4 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. <E T="03">See, e.g.,</E> 24 Mo. Rev. Stat. sec. 361.749(5)(6); Wis. Stat. sec. 203.04(2)(f); <E T="03">cf.</E> Montana 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). </FTNT> Before the CFPB's market monitoring of these products intensified, the CFPB issued an advisory opinion in November 2020, <SU>6</SU> <FTREF/> 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 Regulation Z (12 CFR part 1026) and the Truth in Lending Act (TILA). <SU>7</SU> <FTREF/> The opinion explained that an earned wage product is not TILA or Regulation Z credit if it meets <E T="03">all</E> 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. <FTNT> <SU>6</SU>  CFPB, <E T="03">Truth in Lending (Regulation Z); Earned Wage Access Programs</E> (Nov. 2020), <E T="03">https://files.consumerfinance.gov/f/documents/cfpb_advisory-opinion_earned-wage-access_2020-11.pdf</E> (hereinafter <E T="03">2020 Advisory Opinion</E> ). </FTNT> <FTNT> <SU>7</SU>  Regulation Z defines credit at § 1026.2(a)(14). </FTNT> 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. <SU>8</SU> <FTREF/> The opinion did not address what counts under TILA and Regulation Z as a finance charge with respect to any such product that is credit. As the CFPB has acknowledged, the 2020 advisory opinion appears to have caused significant regulatory uncertainty. <SU>9</SU> <FTREF/> <FTNT> <SU>8</SU>  The opinion stated that it had no application to such products. <E T="03">See 2020 Advisory Opinion, supra</E> note 6, at 3-7. </FTNT> <FTNT> <SU>9</SU>   <E T="03">See, e.g.,</E> Nat'l Consumer L. Ctr., Ctr. for Responsible Lending, <E T="03">Concern About Pr ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 56k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━