Mark Brnovich, the Arizona Attorney General, recently issued an opinion regarding whether earned wage access (EWA) products are “consumer lender loans” under the state’s Consumer Lenders Act (CLA) such that a person who makes, procures, or advertises an EWA product must be licensed as a “consumer lender.” The AG concluded that an EWA product offered as a no-interest and non-recourse product is not a “consumer lender loan” under the CLA.
The AG stated that an EWA product is a payment of wages already earned by the employee and, for purposes of the opinion, is “non-recourse” if the EWA provider retains no legal or contractual right to repayment against the consumer, does not engage in debt collection activities with regard to any unpaid balance, does not sell any unpaid balance to a third party, and does not report nonpayment to a consumer reporting agency. Applying the Black’s Law Dictionary definition of “loan,” the AG concluded that a non-recourse EWA product is not a “loan” because it is neither for the employee’s “temporary use” nor is there a “condition that it shall be returned, or its equivalent in kind.” Instead, an EWA product permanently provides an employee with already-earned funds which the employee therefore does not need to return to the EWA provider.
The AG described the “primary function” of an EWA product as a means “to accelerate the payment of funds that have already been earned as if the employer had shortened the pay period.” The AG also noted that while the EWA provider, if it is working directly with the employer, has the right to directly receive a portion of a consumer’s paycheck or, where the employer is not directly involved, to debit the consumer’s bank account on or after the date on which the next payments is to be deposited, the EWA provider has no legal or contractual right to repayment against the consumer. The AG concluded that a “non-recourse” EWA product does not qualify as a loan under the CLA and an EWA provider is therefore not required to obtain a license from the state’s Department of Insurance and Financial Services.
An alternative reason given by the AG for why a non-recourse, no-interest EWA product is not a loan is that it there is no “finance charge” imposed within the meaning of the CLA because the obligation to repay principal does not fall within the CLA definition of “finance charge.” Moreover, even if an EWA provider charges a fee to consumers, the fee would not be “finance charge” as long as it falls within the fees that the CLA excepts from the finance charge. By way of example, the AG noted that excepted fees include a loan origination fee of not more than five percent of a closed-end consumer loan and not more than $150.
The AG also indicated that an EWA provider can receive revenues through services ancillary to providing an EWA product without converting the product into a “loan” under the CLA so long as the EWA provider does not condition providing an EWA product on receipt of any ancillary revenue or impose a fee falling within the CLA’s “finance charge” definition. Examples of permitted ancillary fees given by the AG are a voluntary gratuity requested by the provider, a fee for an expedited transfer of an EWA payment, or interchange revenue earned by the provider from money spent by the consumer using a payment card.
In November 2020, the CFPB issued an advisory opinion (AO) on EWA programs. The AO addressed whether an EWA program with the characteristics set forth in the AO was covered by Regulation Z. Such characteristics included the absence of any requirement by the provider for an employee to pay any charges or fees in connection with the transactions associated with the EWA program and no assessment by the provider of the credit risk of individual employees. The AO set forth the Bureau’s legal analysis on which it based its conclusion that the EWA program did not involve the offering or extension of “credit” within the scope of Regulation Z. In the AO, the CFPB observed that there may be EWA programs with nominal processing fees that nonetheless do not involve the offering or extension of “credit” under Regulation Z and advised that providers of such programs can request clarification about a specific fee structure.
In January 2022, then CFPB Acting General Counsel (and now General Counsel) Seth Frotman indicated that due to “repeated reports of confusion” caused by the AO, he planned to recommend to Director Chopra “that the CFPB consider how to provide greater clarity on these types of issues.” While acknowledging that the AO had left open the possibility that an EWA product with nominal processing fees might not be “credit” under Regulation Z, Mr. Frotman suggested that possibility was remote. More specifically, he noted that the CFPB had expressly limited the AO’s application to EWA programs meeting all of the characteristics set forth in the AO and stated that “products that include the payment of any fee, voluntary or not, are excluded from the scope of the advisory opinion and may well be TILA credit.” Mr. Frotman also noted that the AO does not speak to whether EWA products would be “credit” under federal laws other than the TILA, such as the CFPA or the ECOA, or under state law. Mr. Frotman’s comments were made in a letter responding to a letter sent to him by consumer advocacy groups regarding proposed New Jersey legislation on EWA products.
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