The Consumer Financial Protection Bureau (CFPB) released its final Advisory Opinions Policy (AOP) on Monday, November 30, setting forth procedures to facilitate the submission of requests for advisory opinions from it by interested parties. Simultaneously, the CFPB issued two advisory opinions under the new program, addressing regulatory uncertainty surrounding the status of earned wage access programs and private education loans that refinance a consumer’s pre-existing federal and private education loans.
Following on the heels of a pilot program that launched in June of this year, the CFPB obtained public comment and finalized its AOP. The purpose of this policy is to provide an additional mechanism for providing clear and useful guidance to regulated entities. While the CFPB also utilizes “Compliance Aids,” and provides individualized “implementation support” to regulated entities through its Regulatory Inquiries Function, neither of these tools is intended to interpret ambiguities in legal requirements. Thus, advisory opinions fill that gap and provide a way for the CFPB to “facilitate timely guidance by the Bureau that enables compliance by resolving outstanding regulatory uncertainty.”
Advisory opinions issued under this policy are considered interpretive rules that resolve regulatory uncertainty. Requests submitted to the CFPB require particular information in order to be considered: (1) the request must identify information the requestor believes is confidential; (2) the request must identify the person or entity seeking the advisory opinion, but outside counsel, trade associations, or other groups may submit requests on behalf of clients without identifying those clients; (3) the request must affirm that the issue on which the advisory opinion is sought is not the subject of any known or knowable active litigation or investigation; and (4) the request must set forth all known material facts and circumstances, identify the regulatory or statutory provision at issue, and provide a proposed interpretation of the law or regulation that resolves the ambiguity.
Advisory opinions issued by the CFPB will focus primarily on clarifying ambiguities in regulations, though some opinions may also clarify statutory ambiguities when necessary. However, the CFPB will not issue advisory opinions on issues that are better addressed through legislative rulemaking, such as opinions that would change the text or commentary of a regulation or that require highly fact-intensive applications of general standards.
In response to public comments, the CFPB explained that advisory opinions will “help entities better understand their obligations under Federal consumer financial law,” and “will promote compliance with the law that will prevent consumer harm.” The CFPB believes that these opinions will also promote efficiency: “If an advisory opinion makes clear the law does not apply, it will avoid regulated entities incurring unnecessary compliance costs.”
The AOP allows the public to provide feedback after an advisory opinion is issued, which would allow interested stakeholders to submit feedback if they believe the CFPB should clarify or reconsider an advisory opinion. While the CFPB declined to include a requirement that public input be considered before issuing advisory opinions, it clarified that “there is nothing in the Advisory Opinions Policy that would prevent the Bureau from soliciting input on a draft advisory opinion before finalizing,” when appropriate.
Along with the release of its final policy, CFPB released two advisory opinions on Monday, one addressing regulatory uncertainty with respect to earned wage access programs and the other providing clarity with respect to private education refinance loans.
The CFPB’s first advisory opinion addresses the application of Regulation Z, implementing the Truth in Lending Act (TILA), to certain earned wage access (EWA) programs. EWA programs allow employees to meet short-term liquidity needs that arise between paychecks by addressing the lag between employees’ hours worked and receipt of their paychecks by providing advance access to earned, but as of yet, unpaid wages. The CFPB’s opinion clarifies that an EWA Program conforming to the characteristics described in the opinion’s summary of material facts does not involve the offering or extension of “credit” as defined by Section 1026.2(a)(4) of Regulation Z (“Covered EWA Program”).
According to the opinion, a Covered EWA Program must be provided by a third-party provider that contracts with an employer; the amount covered by each transaction cannot exceed the amount of wages the employee has earned up until the date of the transaction; and the employee makes no payment and is charged no fees to access his or her EWA funds, among other requirements.
The CFPB’s second advisory opinion clarifies that loans that refinance or consolidate a consumer’s pre-existing Federal, or Federal and private, education loans meet the definition of a “private education loan” in TILA and Regulation Z and are subject to the disclosure requirements of Regulation Z for such loans and not to the different disclosure requirements applicable to installment loans. The CFPB’s opinion was intended to address the ambiguity in TILA and Regulation Z regarding whether a loan that consolidates existing Federal education loans or refinances a single loan is issued “expressly for postsecondary educational expenses to a borrower,” and thus is subject to the same Regulation Z disclosure regimen that applies to the original loans.
The CFPB concluded that “the best reading of TILA and Regulation Z is that a loan that consolidates Federal loans or a loan that refinances a Federal loan incurred expressly for postsecondary educational expenses is, itself, ‘expressly for postsecondary educational expenses.’” Accordingly, it concluded that TILA can best be implemented by construing a “private education loan” to include loans issued to former students who originally took out loans for postsecondary education, in addition to loans issued to those currently in school.
The developments announced by the CFPB on Monday will likely result in added clarity for both entities regulated by it and for consumers subject to its protection. By creating a mechanism that allows interested stakeholders to seek clarity with respect to ambiguous regulations, all interested parties will have a better understanding of their rights and obligations in this regulatory space.