The CFPB has issued an order terminating the approval order issued in December 2020 to Payactiv, Inc. through the CFPB’s Compliance Assistance Sandbox (CAS) Policy.
The approval order confirmed that Payactiv’s earned wage access (EWA) program described in the order did not involve the offering or extension of “credit” as defined by section 1026.2(a)(14) of Regulation Z, and that Payactiv therefore had a safe harbor from liability under the TILA and Regulation Z in connection with the specified EWA program. EWA products provide employees with access to earned but as yet unpaid wages. Such products typically involve an EWA provider (such as Payactiv) 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 termination order states that the CFPB’s Enforcement Office notified Payactiv on June 3, 2022 that it was considering whether to recommend that the CFPB terminate the approval order “in light of certain public statements the company made wrongly suggesting the CFPB had endorsed Payactiv or its products.” The termination order further states that, in reply, Payactiv submitted a request to terminate the approval order, indicating that it could voluntarily terminate its participation in the sandbox program at any time and that it wanted to make material changes to its EWA program without CFPB review.
The approval order followed the issuance of an advisory opinion (AO) by the CFPB in November 2020 that dealt with EWA products and 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 Bureau indicated 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 could request clarification about a specific fee structure by applying for an approval under the CAS Policy.
In October 2021, a group of 96 organizations and individuals, who described themselves as consisting of “consumer, labor, civil rights, legal services, faith, community and financial organizations and academics,” sent a letter to the CFPB urging the Bureau to regulate EWA products as credit subject to the TILA. The letter took aim at the AO and the Payactiv approval order. In January 2022, Seth Frotman, now CFPB General Counsel, indicated that more clarity on EWA products was needed from the CFPB.
In view of these developments, providers of EWA products would be well-advised to prepare for greater regulatory scrutiny.
In June 2022, the CFPB terminated a no-action letter issued to Upstart Network, Inc. in connection with Upstart’s automated model for making underwriting and pricing decisions on applications by consumers for unsecured, closed-end loans. That termination followed the CFPB’s May 2022 announcement that as part of a new approach to innovation in consumer finance, it was replacing its Office of Innovation and Operation Catalyst with a new office, the Office of Competition and Innovation. (We subsequently learned from the CFPB’s press office that despite calling its No-Action Letter and CAS programs ineffective in its announcement, the CFPB has not rescinded those programs and is still taking new applications and processing previously submitted applications.)
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