CFPB Ends Safe Harbor for Employee Lending Service

The CFPB terminated a financial service firm's Sandbox Approval Order granting a safe harbor from liability under the Truth in Lending Act.

The Sandbox Approval Order permitted the financial services firm to offer employees of partner companies a product that allowed a corporate employee to borrow against money that had been earned but not yet paid to the employee. The service was free to those who direct deposited their wages on the firm's prepaid or payroll card. The firm assessed $1 per day for the service for those employees who did not have a firm prepaid or payroll card. The CFPB Sandbox Approval Order was granted to provide the firm a temporary safe harbor on this product from liability under the Truth in Lending Act and Regulation Z.

In response to the CFPB informing the firm "that it was considering terminating the Approval Order in light of certain public statements the [firm] made wrongly suggesting a CFPB endorsement of its products" (see CFPB release), the firm requested the termination of the safe harbor "to make changes to its fee model. . . without CFPB review."

The CFPB stated that it plans to issue guidance to provide clarity concerning its advisory opinion on "earned wage access" products under the Truth in Lending Act and Regulation Z.