On December 22, 2023, the Attorney General of Montana released an opinion (the “Opinion”) concluding that certain earned wage access (EWA) products are not “consumer loans” or “deferred deposit loans” under Montana law and do not, therefore, require licensure by the Montana Division of Banking and Financial Institutions. The Opinion only applies to EWA products that are:
- fully non-recourse, meaning providers do not: have any legal or contractual right to repayment from consumers, engage in any debt collection activities, sell or assign any balances, or report any non-payment to a consumer reporting agency;
- not conditioned on payment of any mandatory interest, fee, or other compensation; and
- limited in amount to the consumer’s accrued income.
While the Opinion is focused on Montana law, it cites as persuasive the Consumer Financial Protection Bureau’s (CFPB’s) 2020 advisory opinion, notes that the CFPB specifically exempted certain EWAs from its Payday Lending Rule, and discusses how the Federal Reserve Board of Governors previously used similar reasoning to conclude that credit is not extended when a consumer borrows against the accrued cash value of an insurance policy. The Opinion notes that the Montana Consumer Loan Act does not define “loan” or “credit” and states that because there is no right to repayment, the income is already owed to the consumer, and the products are not conditioned on “interest, fees, other consideration, or expense,” they are not loans.
Notably, the Opinion states that voluntary tips and “certain ancillary service charges” are not “interest,” “fees,” “consideration,” or “expense” under the Consumer Loan Act because neither the availability nor the amount of the advance is conditioned on the payment of a tip or charge (such as potentially an expedited funding fee). The Opinion states that “[f]ully non-recourse EWA products . . . avoid many of the abuses in the payday loan marketplace such as high interest rates, debt collection practices, credit reporting, and extensive consequences of reborrowing” and notes that the CFPB excluded EWA products from its Payday Lending Rule on the same basis.
As states continue to take divergent paths with regard to the regulation of EWAs, it has become increasingly difficult for EWA providers to offer these consumer-friendly products on a nationwide basis. As we mentioned in our discussion of the CFPB’s letter to the California Department of Financial Protection and Innovation, the CFPB has not provided sufficient clarification on its view of EWAs that fall outside of the 2020 Advisory Opinion, particularly since terminating its prior PayActiv approval order in 2022. As we have previously discussed, the Government Accountability Office noted that there continues to be uncertainty regarding whether EWA products not covered by the 2020 Advisory Opinion are to be considered credit under TILA. This has created a vacuum that the states have filled in a variety of ways, creating confusion and unnecessary limitations on the availability of EWAs to the consumers who would benefit from them.