Ahead of an upcoming merger between a digital banking platform and a special purpose acquisition company, both parties disclosed in a regulatory filing last week that the platform received a Civil Investigative Demand (“CID”) in June 2020 related to its “cash paycheck advance business in compliance with the prohibition against UDAAPs, the EFTA, and, to the extent it applies, the Truth in Lending Act.” According to the filing, the platform provided the CFPB with all information and documents required by the CID, and on September 27, 2021, the CFPB staff notified us that it currently did not intend to recommend that the CFPB take any enforcement action.
Putting It Into Practice: While this news did not garner headlines since last week, it is an important reminder that the CFPB and other regulators are monitoring the cash advance space for activities that may run afoul of consumer protection laws (we discussed cash advance products in previous Consumer Finance & Fintech Blog posts here and here). Industry participants should also note that the CFPB’s decision to close its investigation and not proceed with a public enforcement action should not be viewed as an indication that the earned wage access model was acceptable in this case. Rather, the CFPB generally does not provide its reasoning for not recommending enforcement actions at the conclusion of investigations.
Relatedly, in an interesting development from yesterday, the National Consumer Law Center (NCLC) along with 96 consumer, labor, civil rights, legal services, faith, community and financial organizations and academics, submitted a comment letter to the new CFPB director, Rohit Chopra, asking him specifically to eliminate or dramatically revise the 2020 Earned Wage Access advisory opinion and compliance assistance sandbox (CAS) approval order. Central to NCLC’s concerns was that EWAs should be treated as consumer loans with the appropriate regulatory guardrails to avoid placing consumers into an extensive cycle of repeat reborrowing and indebtedness. The letter also took an aim at other emerging products such as income share and some point-of-sale financing arrangements for claiming not to be credit or covered by credit laws. In fact, the letter gives kudos to the CFPB for its recent enforcement action against an income share provider.