Since the California Consumer Financial Protection Law (CCFPL) became effective on January 1, the state’s Department of Financial Protection and Innovation (DFPI) has wasted no time in asserting its expanded jurisdiction over consumer financial services providers. (The DFPI is the new name given to the state’s Department of Business Oversight (DBO) by the CCFPL.)
Having announced on January 19 that is has launched an investigation into multiple debt collectors, the DFPI announced last week that it has signed memorandums of understanding (MOUs) with five earned wage access (EWA) companies. The DFPI indicated in its announcement that it believes the MOUs “to be the first agreements of their kind between the fintechs and a state regulator.”
The CCFPL gives the DFPI new rulemaking and enforcement authority over “covered persons” relating to unlawful, unfair, deceptive, or abusive acts and practices and defines the term “covered persons” expansively to include entities that previously were not subject to DBO oversight or oversight by a primary regulator, such as debt collectors, credit reporting agencies, certain fintech companies – including some who offer point-of-sale financing – and some merchants who extend credit directly to consumers.
The CCFPL authorizes the DFPI to prescribe regulations requiring any covered person to register with the DFPI. According to the DFPI, the MOUs are intended to allow the EWA companies “to continue operating in California, in advance of possible registration under the [CCFPL].” EWA products provide employees with access to earned but as yet unpaid wages. Such products typically involve an EWA provider that enables employees to request a certain amount of accrued wages, disburses the requested amounts to employees prior to payday, and later recoups the funds through payroll deduction or bank account debits on the subsequent payday. The EWA companies signing the MOUs use two EWA models: an employer-based model which offers early access to wages in partnership with an employer and a direct-to-consumer model which does not require employer participation.
The MOUs require the EWA companies to provide quarterly reports to the DFPI containing specified information (such as information relating to fees, consumer complaints, payment “rollovers,” and delinquency, default, partial repayments, cancellations, or deferrals), allow regular periodic onsite DFPI examinations, follow certain best practices, and provide specified disclosures to consumers in their EWA product agreements. The MOUs do not contain any release of liability covering the offering of EWA products before the dates of the MOUs and provide that they do not restrict the DFPI “from asserting any provision of law including the CCFPL” or bar the DFPI from asserting in the future that the companies’ EWA products require licensing or registration with the DFPI. The MOUs do not insulate the companies from any private liability arising from the offering of EWA products.
One of the companies entering into an MOU is Payactiv, Inc., which received an approval order for its EWA program from the CFPB through the CFPB’s Compliance Assistance Sandbox Policy. In the order, the CFPB confirmed that Payactiv’s EWA program described in the order did not involve the offering or extension of “credit” as defined by TILA and Regulation Z. The approval order followed an advisory opinion issued by the CFPB in December 2020 dealing with EWA products in which the CFPB concluded that an EWA program with the characteristics set forth in the opinion did not involve the offering or extension of “credit” within the scope of TILA and Regulation Z.
In the MOUs, the DPFI recites that the EWA companies are “covered persons” under the CCFPL because they are offering a “consumer financial product or service” as defined in the CCFPL. Under the CCFPL, a “consumer financial product or service” means a “financial product or service” offered to consumers for personal, family, or household use. A “financial product or service” is defined to include “extending credit.” The CCFPL defines “credit,” in part, to mean “the right granted by a person to another person to defer payment of a debt [or] incur debt and defer its payment.” It defines “debt,” in part, to mean “any obligation of a person to pay another person money regardless of whether the obligation is absolute or contingent.”
Given the CCFPL’s broad definition of “debt,” it is possible that in the MOUs the DFPI characterizes the EWA companies as “covered persons” under the CCFPL because it considers the companies to be “extending credit” within the meaning of the CCFPL even if they are not extending credit covered by TILA and Regulation Z. If so, companies offering other products not considered to be “credit” under TILA and Regulation Z could face DFPI scrutiny because they could be considered to be “extending credit” within the meaning of the CCFPL. Most significantly, regardless of the DFPI’s rationale for considering the EWA companies to be “covered persons,” the MOUs signal that the DFPI intends to interpret its jurisdiction under the CCFPL expansively to reach certain products even where the CFPB has declined to assert jurisdiction.