The Consumer Financial Protection Bureau (CFPB) issued two separate approval orders on Dec. 30 to Synchrony Bank and Payactiv, Inc. under the CFPB’s Policy on the Compliance Assistance Sandbox (“Sandbox Policy”). The approvals provide the two companies with safe harbors from liability and are expected to pave the way for the companies to offer innovative financial products to the public without regulatory retribution, provided the companies comply with the terms and conditions of their respective approvals.

The approvals follow the CFPB’s focused efforts to promote innovation, competition, and consumer access within financial services — which have culminated in, among other initiatives, the publication of the Sandbox Policy in September 2019. The idea behind the CFPB’s regulatory sandbox is to provide innovative companies with the opportunity to test cutting-edge products and services within the confines of a controlled setting.

For Synchrony, the CFPB has approved the bank’s offering of a dual-feature credit card (DFCC) program. Upon issuance of the DFCC, a consumer receives a secured credit card which requires the consumer to provide a security deposit to open the DFCC account. After at least one year, the DFCC customer, subject to compliance with certain eligibility criteria, is offered the opportunity to graduate to use the unsecured feature of the account on terms that were disclosed at the opening of the DFCC account and then redisclosed in connection with the opportunity to opt in.

The DFCC account is essentially another form of a “credit builder” product which is available to consumers who have lower credit scores or lack sufficient credit history. The terms of credit builder products vary across institutions, but the central feature is the requirement that the consumer make advanced payments prior to receiving funds. In this case, because the consumer’s funds are initially secured, the credit will carry a lower credit risk to the card issuer. This means that a consumer who may have ordinarily been locked out of the credit market can establish credit over the initial secured card period by making timely payments. The goal is that the consumer will ultimately be able to trigger the unsecured feature of the card once the consumer has satisfied the eligibility criteria. As the CFPB’s order notes, the innovative product structure of the DFCC raises a number of specific questions about the application of existing law both to the disclosures of the two modes of use and to the substance of the envisioned graduation mechanism.

For Payactiv, the product receiving the safe harbor is intended to offer workers early access to their earned but unpaid wages. The Payactiv program accomplishes this by contracting with employers to offer to the employer’s employees a collection of financial services, including employee-requested transfers of wages that an employee has already earned. The amount of each Payactiv earned wage access (EWA) transaction does not exceed the accrued cash value of the wages the employee has earned up to the date and time of the transaction.

EWA products have recently emerged in the market as a novel way for employees to meet short-term liquidity needs that arise between paychecks without turning to more costly alternatives like traditional payday loans. In certain cases, regulatory scrutiny has also followed some of these EWA programs with allegations of the programs amounting to extensions of credit to employees.

With these two approvals, there is hope that the regulated institutions will be able to bring these products into the marketplace and confront the regulatory uncertainty with the assurance that specific aspects of the relevant products will comply with specific legal requirements. By facilitating compliance in such circumstances, the approvals will likely help further the CFPB’s statutory purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for these products and services are fair, transparent, and competitive.