On August 1, Maryland’s Office of Financial Regulation (OFR) issued guidance to “provide clarity on how [the OFR] views Earned Wage Access [EWA] products and to describe the requirements entities offering these products must adhere to.” Unfortunately, the guidance largely fails to deliver the promised clarity.

The OFR states that EWA products allow “consumers to obtain access to wages that they have earned but not yet received via employer payroll.” In determining whether an EWA product is a loan requiring lender licensing, the guidance distinguishes between products provided directly by employers and those provided by third parties, and also addresses products provided by employers with third party assistance.

The guidance concludes that EWA products provided by employers are not “loans,” but is internally inconsistent whether this conclusion is limited to EWA products provided “at no cost.” The suggestion that employer EWA products with a cost to the employee might possibly be “loans” requiring licensure is perplexing since Section 12-303(a)(3)(iii) of the Commercial Loan Law, cited by the OFR, flatly provides, without limitation, that the relevant subtitle “does not apply to … a loan between an employer and an employee.”

The guidance concerning EWA products provided by third parties or with third party assistance is also murky. It seems to suggest that third-party EWA products are loans subject to usury limits and lender licensing requirements, but states that “the arrangement’s facts and circumstances must be analyzed to determine if those providers are to be deemed lenders and whether they would require a license.” Relevant facts and circumstances, at least where an employer and third party participate together in an EWA program, include:

• Who bears the economic risk? If the third party bears the burden, OFR will be more likely to view it as the true provider of the advance rather than the employer and thus a lender under Maryland law.
• What level of contact does the third party have with the employee? The greater the level of contact the employee has with the third-party provider, the less the third party will appear to be merely a service provider to the employer.
• Who benefits from any fees or tips the employee pays? If the third party receives most of the economic benefit from the transaction, it is more likely to be considered the lender. This is particularly true if the third party receives tips or fees directly from the employee.

The OCR guidance is also unclear on the permissibility of fees and tips in an EWA program in light of Maryland usury law. Without referencing back to its “at no cost” language, the OCR flatly states: “If the employer provides the product directly to the employee, as noted above, it is not considered a loan under Maryland law and thus Maryland interest rate limits do not apply.” As to “loans” by third parties, it goes on to cite the definition of “interest” in Maryland Commercial Law §12-101(e) — “any compensation directly or indirectly imposed by a lender for the extension of credit for the use or forbearance of money, including any loan fee” (emphasis added) — and to focus on the easy question whether there is “compensation” without directly addressing whether the tip is “imposed” by the lender. The closest it comes is the following statement:

If the third party sets a tip default at an amount greater than zero, the consumer may feel compelled to provide a tip. In some instances, the tip would factor into the interest rate on the loan product.

Exactly what conduct will convert a voluntary “tip” into “interest” remains a question requiring the application of solid legal judgment.

The guidance concludes by warning that OFR will be monitoring the use and provision of EWA products, particularly the fees that providers charge and any deceptive, unfair or abusive practices, and by encouraging providers to address any questions to Assistant OFR Commissioner Shereefat Balogun.