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[Federal Register Volume 90, Number 9 (Wednesday, January 15, 2025)]
[Rules and Regulations]
[Pages 3622-3624]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-00381]

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CONSUMER FINANCIAL PROTECTION BUREAU

12 CFR Part 1026

[Docket No. CFPB-2024-0032]

Truth in Lending (Regulation Z); Consumer Credit Offered to 
Borrowers in Advance of Expected Receipt of Compensation for Work

AGENCY: Consumer Financial Protection Bureau.

ACTION: Advisory opinion rescinding previous advisory opinion.

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SUMMARY: The Consumer Financial Protection Bureau (CFPB) is issuing 
this advisory opinion to rescind an advisory opinion it issued in 
November 2020 that described how one particular type of ``earned wage'' 
product does not involve the offering or extension of ``credit'' as 
that term is defined in the Truth in Lending Act and Regulation Z.

DATES: This advisory opinion is applicable January 15, 2025.

FOR FURTHER INFORMATION CONTACT: George Karithanom, Regulatory 
Implementation & Guidance Program Analyst, Office of Regulations, at 
202-435-7700 or at: https://reginquiries.consumerfinance.gov/. If you 
require this document in an alternative electronic format, please 
contact [email protected].

SUPPLEMENTARY INFORMATION:

I. Advisory Opinion

A. Background

    One major source of demand for consumer credit is derived from the 
mismatch of when American workers receive compensation for their labor 
and when they incur expenses. While there have long been sources of 
credit for consumers to pay expenses in advance of receiving their 
compensation, there are a number of new offerings that seek to provide 
additional choices for consumers.
    Instead of being paid daily or upfront, American workers generally 
provide services before employers pay for those services some time 
later--typically on a biweekly or semi-monthly wage cycle.\1\ Employers 
have a strong incentive to delay payment, since these delays reduce 
working capital needs. Nearly three-quarters of non-farm payroll 
employees remain paid biweekly or even less frequently, and the 
remainder are generally paid their wages weekly. To address liquidity 
challenges, many consumers therefore turn to credit products, such as 
payday loans, personal installment loans, and credit cards. In recent 
years, American consumers have significantly expanded their use of 
products sometimes marketed as ``earned wage access'' or ``earned wage 
advance.'' \2\ As these paycheck advance products generally have 
features that make them subject to the CFPB's jurisdiction, the CFPB 
has sought to understand these and other products, particularly those 
offered online, by engaging in ongoing monitoring of the market, 
including, for example, collecting and analyzing data, engaging with 
stakeholders (e.g., market participants, consumer groups, and States), 
tracking and studying market developments, and conducting market 
research, among other things.
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    \1\ While the terms ``employer'' and ``employee'' are used 
throughout, this advisory opinion applies more broadly to situations 
where consumers receive payment for work performed.
    \2\ A recent CFPB report describes rapid recent growth in one 
part of this developing market. See CFPB, Developments in the 
Paycheck Advance Market, at 3 (July 2024) (hereinafter 2024 Paycheck 
Advance Report).
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    While many of these products have similarities to payday loans, 
there are important distinctions. The CFPB has found that there are two 
emerging models of earned wage products: employer-partnered and direct-
to-consumer.
    For ``employer-partnered'' products, providers contract with 
employers to offer funds in amounts not exceeding accrued wages. Those 
funds are recovered via one or more payroll deductions, lowering the 
consumer's paychecks accordingly, with other recourse options generally 
unavailable to the provider. In contrast, ``direct-to-consumer'' 
products provide funds to employees in amounts that are not as strictly 
limited by accrued wages. Some of these products limit advances to an 
amount estimated to be below accrued wages and do not consider other 
factors. Others consider estimated accrued wages as one of several 
factors when determining the amount to advance. Still others do not 
expressly state that estimated accrued wages are a factor considered 
despite being marketed as earned wage products. Regardless of the exact 
model, funds are generally recovered via automated withdrawal

[[Page 3623]]

from the consumer's bank account,\3\ and generally without limit to the 
provider's ability to seek further recourse as necessary.\4\
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    \3\ This includes, without limitation, prepaid and payroll card 
accounts.
    \4\ As described, direct-to-consumer products lie outside the 
scope of the ``wage advance'' (12 CFR 1041.3(d)(7)) and ``no cost 
advance'' (12 CFR 1041.3(d)(8)) exclusions from the CFPB's 2017 
Payday Rule. Employer-partnered products, however, may be (but are 
not necessarily) within the scope of one exclusion or both, with 
their revenue model particularly relevant to that determination. See 
12 CFR 1041.3(d)(7)(ii)(A), (d)(8).
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    Some of the differences between these two types of earned wage 
products, however, are starting to erode. For example, some direct-to-
consumer providers are now connecting directly to payroll records and 
recouping funds from payroll deductions, and ongoing State legal 
developments may cause them to limit their recourse options as well.\5\
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    \5\ See 2024 Paycheck Advance Report, supra note 2, n.7. Several 
recently enacted State laws prohibit providers of earned wage 
products, including direct-to-consumer products, from compelling 
consumer repayment of earned wage amounts and fees through various 
means, such as lawsuits or third-party debt collection. See, e.g., 
Mo. Rev. Stat. Sec.  361.749(5)(6) (2023); Wis. Stat. Sec.  
203.04(2)(f) (2023); cf. Mont. Op. Att'y Gen., Vol. 59, Op. 2 (Dec. 
22, 2023) (finding earned wage products do not meet the state law 
definitions of ``consumer loan'' or ``deferred deposit loan'' when 
they are ``fully non-recourse,'' among other criteria).
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    Before the CFPB's market monitoring of these products intensified, 
the CFPB issued an advisory opinion in November 2020,\6\ that described 
how one particular type of earned wage product does not involve the 
offering or extension of ``credit'' as that term is defined in the 
Truth in Lending Act (TILA) and Regulation Z (2020 Advisory 
Opinion).\7\ The opinion explained that an earned wage product is not 
TILA or Regulation Z credit if it meets all of several identified 
conditions, including: providing the consumer with no more than the 
amount of accrued wages earned; provision by a third party fully 
integrated with the employer; no consumer payment, voluntary or 
otherwise, beyond recovery of paid amounts via a payroll deduction from 
the next paycheck, and no other recourse or collection activity of any 
kind; and no underwriting or credit reporting.\8\ The 2020 Advisory 
Opinion was silent about whether earned wage products that do not meet 
all of these conditions are credit under TILA and Regulation Z.\9\
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    \6\ Truth in Lending (Regulation Z); Earned Wage Access 
Programs, 85 FR 79404 (Dec. 10, 2020).
    \7\ Regulation Z defines credit at section 12 CFR 1026.2(a)(14).
    \8\ See 2020 Advisory Opinion, supra note 6, at 79405-06.
    \9\ The opinion stated that it had no application to such 
products. Id. at 79408 (``This advisory opinion applies solely to 
the question of whether Covered EWA Programs (i.e., those meeting 
all of the characteristics described in part I.B above) fall under 
the definition of credit in section 1026.2(a)(14) of Regulation Z 
identified above. This advisory opinion has no application to any 
other circumstance, and it does not offer a legal interpretation of 
any other provisions of law.'').
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    In July 2024, the CFPB proposed an interpretive rule on this same 
topic (2024 Proposed Interpretive Rule) and voluntarily sought public 
comment. The comment period closed on August 30, 2024.

B. Legal Analysis

    The CFPB is rescinding the 2020 Advisory Opinion for two 
fundamental reasons: (i) its legal analysis is significantly flawed in 
numerous respects; and (ii) it engendered substantial regulatory 
uncertainty.
1. The 2020 Advisory Opinion's Legal Analysis Is Significantly Flawed 
in Numerous Respects
    Section 1026.2(a)(14) of Regulation Z defines ``credit'' as ``the 
right to defer payment of debt or to incur debt and defer its 
payment.'' \10\ TILA defines ``credit'' virtually identically as ``the 
right granted by a creditor to a debtor to defer payment of debt or to 
incur debt and defer its payment.'' \11\ However, TILA and Regulation Z 
do not define ``debt.'' Regulation Z provides that undefined terms 
``have the meanings given to them by state law or contract.'' \12\
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    \10\ 12 CFR 1026.2(a)(14).
    \11\ 15 U.S.C. 1602(f).
    \12\ 12 CFR 1026.2(b)(3).
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    The first analytical flaw of the 2020 Advisory Opinion is that its 
consideration of the meaning of ``debt'' under state law was 
insufficient. It did not mention the Regulation Z rule of construction 
that undefined terms have the meanings given to them by state law or 
contract. It only cited a portion of the definition of debt in a recent 
edition of Black's Law Dictionary, and did not survey the definitions 
of debt in state laws, or other relevant bodies of law, including 
applicable circuit court case law on the definition of ``debt'' in TILA 
and Regulation Z.\13\
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    \13\ Pollice v. Nat'l Tax Funding, L.P., 225 F.3d 379, 410 (3d 
Cir. 2000) (``Although [TILA] does not contain a definition of the 
term `debt,' we believe the term as used in [TILA] should be 
construed as it is defined in the FDCPA.'').
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    Second, the 2020 Advisory Opinion inferred that the consumer does 
not incur a liability when using the narrowly limited type of earned 
wage product covered by the opinion, but did not sufficiently justify 
the inference. The main rationale provided for the inference was that 
this type of product ``functionally operates like an employer that pays 
its employees earlier than the scheduled payday.'' \14\ The opinion did 
not elaborate on what constitutes functional operation, or the 
relevance of the fact that the employer is not literally paying the 
employee's wages early.
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    \14\ 85 FR 79404 at 79406 (emphasis added).
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    Third, the 2020 Advisory Opinion did not consider all relevant 
factors as part of the ``totality of the circumstances'' approach it 
applied to determine what is ``credit.'' The opinion stated only that 
``features often found in credit transactions are absent from'' this 
type of product and that transactions involving this type of product 
are ``[u]nlike many credit transactions. . . .'' \15\ The 2020 Advisory 
Opinion, however, did not consider any of the features of wage advance 
products commonly found in credit transactions, including a consumer's 
receipt of funds, consumer repayment of those funds, and the wage 
garnishment tool used to effectuate repayment. Nor did the 2020 
Advisory Opinion explain how its ``totality of the circumstances'' 
approach derived from the definition of ``credit.''
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    \15\ 2020 Advisory Opinion, supra note 6, at 79407 (emphasis 
added).
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    Fourth, the opinion's claim that it was supported by certain 
statements in the 2017 Payday Rule is unpersuasive. The Payday Rule did 
not make a determination as to whether earned wage products are credit, 
stating only that some product constructs ``may not be'' credit. The 
CFPB declined to perform the more detailed analysis necessary to come 
to a considered conclusion on the boundaries of TILA and Regulation Z 
at that time because the rulemaking was based on the CFPB's UDAAP 
authority, not TILA and Regulation Z. Some earned wage products may not 
be covered by the Payday Rule because of its ``wage advance'' and ``no 
cost advance'' exclusions.\16\ However, these exclusions can only apply 
to earned wage products to the extent that such products are TILA and 
Regulation Z credit. As a result, the CFPB's earlier decision to 
exclude certain earned wage product constructs from the Payday Rule has 
no impact on the credit status of such products under TILA or 
Regulation Z.
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    \16\ See 12 CFR 1041.3(d)(7), 1041.3(d)(8).

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[[Page 3624]]

2. The 2020 Advisory Opinion Engendered Substantial Regulatory 
Uncertainty
    In the months and years following issuance of the 2020 Advisory 
Opinion, it became increasingly evident that it failed to clarify the 
status of earned wage products under TILA and Regulation Z. Indeed, in 
2023, the U.S. Government Accountability Office issued a report 
recommending that the CFPB clarify their status.\17\ This muddying of 
the waters flowed directly from the extreme narrowness of the opinion. 
Few if any of the products in the market at the time of or subsequent 
to issuance fit the mold outlined by the opinion. As a result, 
stakeholders were left to speculate about the CFPB's view about the 
credit status of the many products actually being offered.
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    \17\ U.S. Gov't Accountability Off., GAO-23-105536, Financial 
Technology: Products Have Benefits and Risks to Underserved 
Consumers, and Regulatory Clarity is Needed 36-37 (2023) (citing 
industry requests for clarification). The CFPB has acknowledged the 
need for clarification in this area. See, e.g., Letter from Rohit 
Chopra, Dir., Consumer Fin. Prot. Bureau, to Michael Clements, Dir. 
of Fin. Mkts. and Cmty. Inv., U.S. Gov't Accountability Off., (Feb. 
13, 2023) in U.S. Gov't Accountability Off., GAO-23-105536, supra, 
at 51; Letter from Seth Frotman, Acting General Counsel, Consumer 
Fin. Prot. Bureau, to Beverly Brown Ruggia, N.J. Citizen Action, et 
al., at 2 (Jan. 18, 2022).
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    Worse still, the 2020 Advisory Opinion has been widely cited in 
support of legal conclusions that it did not reach. For example, it has 
erroneously been cited for the general propositions that no-fee earned 
wage products are not credit,\18\ and that employer-partnered earned 
wage products are also not credit.\19\
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    \18\ See, e.g., Off. of the Att'y Gen., State of Ariz., Opinion 
No. I22-005 (Dec. 16, 2022), available at https://www.azag.gov/sites/default/files/2022-12/I22-005.pdf.
    \19\ See, e.g., ZayZoon, Comment Letter on Cal. Dep't of Fin. 
Prot. and Innovation Notice of Proposed Rulemaking [PRO 01-21], at 4 
(May 17, 2023), https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/08/46-PRO-01-21-ZayZoon-US-Inc.-5.17.23_Redacted.pdf; 
Innovative Payments Ass'n, Comment Letter on Cal. Dep't of Fin. 
Prot. and Innovation Notice of Proposed Rulemaking [PRO 01-21], at 4 
(May 11, 2023), https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/08/10-PRO-01-21-Innovative-Payments-Association-5.11.23_Redacted.pdf.
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    In addition, some regulatory uncertainty may have resulted from the 
near-contemporaneous issuance of an ``Approval Order'' that gave one 
provider a temporary safe harbor from liability under TILA and 
Regulation Z with respect to a specific product that did not satisfy 
all the conditions that the 2020 Advisory Opinion identified as taking 
such a product outside the reach of TILA and Regulation Z.\20\ The 2020 
Advisory Opinion applied only to products that had all of the numerous 
characteristics identified above, including that they were free to 
consumers. In contrast, the Approval Order encompassed earned wage 
transactions in connection with which the consumer incurred fees.\21\ 
However, it was never of general interpretative applicability,\22\ and 
was terminated even before its temporary status expired.\23\
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    \20\ See Consumer Fin. Prot. Bureau, Payactiv Approval Order, at 
5 (Dec. 30, 2020), https://files.consumerfinance.gov/f/documents/cfpb_payactiv_approval-order_2020-12.pdf.
    \21\ See id.
    \22\ See id. at 4 n.15.
    \23\ See Consumer Fin. Prot. Bureau, Order to Terminate Sandbox 
Approval Order (June 30, 2022), cfpb_payactiv_termination-
order_2022-06.pdf.
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II. Regulatory Matters

    This is an advisory opinion issued under the CFPB's authority to 
interpret TILA and Regulation Z, including under section 1022(b)(1) of 
the Consumer Financial Protection Act of 2010, which authorizes 
guidance ``as may be necessary or appropriate to enable the Bureau to 
administer and carry out the purposes and objectives of the Federal 
consumer financial laws. . . .'' \24\ By operation of TILA section 
130(f), no provision of TILA sections 130, 108(b), 108(c), 108(e), or 
section 112 imposing any liability would apply to any act done or 
omitted in good faith in conformity with this advisory opinion, 
notwithstanding that after such act or omission has occurred, the 
advisory opinion is amended, rescinded, or determined by judicial or 
other authority to be invalid for any reason.\25\
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    \24\ 12 U.S.C. 5512(b)(1).
    \25\ 15 U.S.C. 1640(f).
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    The CFPB has determined that this advisory opinion would not impose 
any new or revise any existing recordkeeping, reporting, or disclosure 
requirements on covered entities or members of the public that would be 
collections of information requiring approval by the Office of 
Management and Budget under the Paperwork Reduction Act.\26\
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    \26\ 44 U.S.C. 3501-3521.
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    Pursuant to the Congressional Review Act,\27\ the CFPB will submit 
a report containing this advisory opinion and other required 
information to the United States Senate, the United States House of 
Representatives, and the Comptroller General of the United States prior 
to the rule's published effective date. The Office of Information and 
Regulatory Affairs has designated this advisory opinion as not a 
``major rule'' as defined by 5 U.S.C. 804(2).]
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    \27\ 5 U.S.C. 801-808.

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2025-00381 Filed 1-14-25; 8:45 am]
BILLING CODE 4810-AM-P
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