The United States Consumer Financial Protection Bureau issued an advisory opinion Monday (November 30) that Earned Wage Access (EWA) products do not represent credit extensions under any of its key regulations. Earned Salary or On-Demand Payroll Access is used by many companies to allow their employees to access their payroll before the scheduled payday arrives. Solutions in this area range from payday loan variations and rolling fees to fixed fee agreements and interest payments.

The regulation cited by the CFPB is part of a federal law that standardizes how lenders pass on the cost of borrowing to consumers. Among other products, it covers installment loans such as auto loans and personal loans. The earned pay industry is populated by specialists like Even, PayActiv and Daily Pay and HR platforms like Ceridian. Some companies offer early access to earned wages and advance the amount requested by the employee, which is then deducted from the wages. Other companies offer simple access to wages for a fee. None of them would qualify their offers as a loan or credit extension, but regulators at the state and federal level have studied the space to clarify what a relatively new payroll application is. For example, PayPal allowed its employees to access on-demand wages through Even.

The advice came in tandem with the formation of a program that allows entities to seek advisory opinions from the office as they seek to stay in compliance with its rules and regulations. With reference to EWA, the office noted that “earned salary access products have recently emerged in the market as an innovative way for employees to meet the short-term cash needs that arise between paychecks without losing money. individuals have to turn to other, more expensive products “.

In the board opinion, the CFPB said that according to data from the Bureau of Labor Statistics, nearly two-thirds of private companies in the United States use biweekly, fortnightly or monthly pay periods. But “the time gap between hours worked and receiving a paycheck can contribute to employee financial distress.” Data shows that 38% of those polled by the Financial Health Network show that the income-spending mismatch may be a primary reason for resorting to small, short-term credit.

“Despite advances in payment technology over the past decades, there are several barriers that prevent businesses from easily implementing shorter payroll cycles. For example, there may be cash flow limitations for businesses that depend on incoming payments and receivables, which must then be processed and filed, ”the CFPB noted.

Typically, continues the CFPB, EWA’s suppliers have allowed employees to claim a certain amount (or part) of accrued wages, “by paying the requested amounts to employees before payday, and recovering later. funds through payroll deductions or bank account debits on the next payday The uncertainty surrounding CFPB’s “Regulation Z” relates to whether vendors actually grant credits.

Specifically, this advisory clarifies that a covered EWA program does not involve the offering or extension of ‘credit’ as providers must provide funds to accounts of the employee’s choice and do not have to charge fees for the remittance of these funds. In addition, EWA must contract directly with employers to offer and provide covered EWA transactions to employees of the employer. In addition, the supplier account must allow the employee a reasonable use of this account free of charge, ”noted the CFPB. This could include the use of prepaid cards, the office noted.

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