CFPB Proposes Rule on Paycheck Advance Products

The CFPB proposed an interpretive rule covering "paycheck advance products," including "earned wage" or "earned wage access" products. The CFPB stated that certain of these products are subject to the Truth in Lending Act ("Regulation Z") since they would be deemed to be "loans." (See related coverage.)

The CFPB said that the interpretive rule applies to products that involve:

• the provision of funds to the consumer in an amount that is based, by estimate or otherwise, on the wages that the consumer has accrued in a given pay cycle; and
• repayment to the third-party provider via some automatic means, like a scheduled payroll deduction or a preauthorized account debit, at or after the end of the pay cycle.

The proposed rule replaces a CFPB advisory opinion issued in November 2020. The CFPB said that the 2020 opinion was silent about whether earned wage products are "credit" under TILA and Regulation Z and that the opinion "appears to have caused significant regulatory uncertainty."

The CFPB said the proposed rule is intended "to help market participants determine when certain existing requirements under Federal law are triggered." The CFPB said the proposed rule would also address "costs that are in substantial connection with extensions of such credit, such as expedited delivery fees and costs marketed as 'tips.'"

In a separate statement, CFPB Director Chopra said: "[t]he proposal makes clear that if workers obtain money that they are required to repay through a paycheck deduction, that’s a loan under existing federal law. This means that lenders must disclose an accurate interest rate in accordance with longstanding rules covering loans."

Comments on the proposed rule are due by August 30, 2024.