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The Significance of the CFPB's Proposed Rule on Employers Who Offer Earned Wage Access: Charting the Path to Zero Fees for Employees
Not Legal Advice. Employers should consult with their own legal counsel. Contents of this article covers employer-integrated earned wage access programs only.
Summary
On July 18, 2024, the Consumer Finance Protection Bureau (CFPB) proposed a landmark interpretive rule that will likely change the landscape of employer-integrated earned wage access (EWA) and on-demand pay. The proposal classifies paycheck advance products made to employees by vendors and providers as loans. This classification creates substantial implications for both employees and employers.
There are several technical & practical considerations surrounding this announcement. These include:
- How will existing EWA offerings align with the new CFPB interpretive rule?
- How does this development change with a new administration?
- What changes are necessary to ensure full compliance with the Truth in Lending Act (TILA) as interpreted by the CFPB?
- When would this type of proposed rule become effective? What are the implications of the CFPB’s proposal on the states?
- If EWA is a loan, does this make the employer technically a loan originator or broker? What are the responsibilities of that designation?
- What is the implication of a potential “industry lawsuit” against the CFPB in terms of rule implementation?
- What alternatives or adjustments can providers consider in their EWA offerings to reduce reliance on fees that might be considered finance charges?
Get the Earned Wage Access Preparedness Plan
These are all questions that at the time of this blog post remain unanswered and likely will remain unanswered for some time.
However, regardless of where the “legal process” winds up, one thing is clear: there is a strong preference from the CFPB that the future of employer earned wage access is one where employees do not pay a fee to access their pay.
The Future of Earned Wage Access: Zero Fees
The CFPB’s proposed rule marks a pivotal change in the employer EWA benefits space. Regardless of whether this rule becomes law or not, the CFPB is aligned with what we’ve anecdotally heard from several world class employers – concern that employees pay fees to access their own pay early.
It seems the CFPB is favoring fee free models for employer-integrating EWA products.
What Employers Need to Know about EWA CFPB Proposed Regulation
According to a recent Payments Dive interview with the Chief of Chime Enterprise, and former CEO of DailyPay, Jason Lee, the recent stance of the CFPB on earned wage access services has sparked swift reactions among employers. This proactive stance is driven by several factors:
- Employers, especially large companies, are keen to stay ahead of potential regulatory changes to avoid the costly and disruptive need to overhaul their EWA programs at short notice.
- In a competitive labor market where employee retention is crucial, offering zero fees or low-cost EWA services is a necessary benefit to prevent employees from seeking better financial flexibility elsewhere.
- Lastly, corporations are currently under budget constraints, and everyone is trying to do more with less.
The CFPB’s position will likely accelerate the trend towards a zero-fee standard, with technology adapting to meet this demand. As Lee noted, this regulatory pressure is nudging the industry towards innovation, with employers prioritizing solutions that align with the evolving expectations of both the market and regulatory bodies.
It’s Your Job To Be Prepared
The CFPB’s proposal – regardless of whether it becomes law – establishes a clear point of view that zero fees for employees is on the horizon. As such, best in class employers will likely not want to be caught flat footed should earned wage access regulations force them to alter the structure of their earned wage access / on-demand pay programs. The best employers who offer on-demand pay are already planning for this transition to zero fees. By preparing now, you can ensure full continuity of service for employees needing this vital benefit.
To help employers navigate this transition, we are offering a free set of tools to support your preparation. Fill out your information on this form to receive our proprietary Earned Wage Access Preparedness Plan.