On October 11, the Office of Administrative Law (OAL) approved the California Department of Financial Protection and Innovation’s (DFPI) proposed regulations on direct-to-consumer (i.e., non-employer offered) earned wage access (EWA) products. This approval marks the culmination of a lengthy regulatory process that began in March 2023 and involved multiple rounds of modifications and public comments. The regulations also impose requirements on debt settlement companies and education financing providers. It will become effective on February 15, 2025.
In our previous blogs, here and here, we discussed the DFPI’s initial proposal and subsequent modifications to classify “income-based advances”— such as no-finance charge, non-recourse, EWA products not offered by an employer — as loans under the California Financing Law (CFL). The DFPI’s proposal aimed to bring direct-to-consumer EWA products under a similar regulatory framework as traditional lending products, such as small dollar loans, while allowing providers to register rather than obtain a CFL license. The Consumer Financial Protection Bureau supported this classification.
The final regulations include several key provisions:
- Classification as Loans: Direct-to-consumer EWA products are classified as loans under the CFL.
- Registration Requirements: Providers of EWA products must register with the state and comply with specific regulatory requirements, in lieu of licensure under the CFL.
- Fee Regulations: The regulations define “charges” to include gratuities and expedited payment fees.
The approval of these regulations represents a significant shift in the regulatory landscape for EWA providers. The DFPI’s determination to regulate income-based advances, including many non-recourse EWA products, continues. These regulations are only one step in the DFPI’s process of increasing oversight of both EWA providers and other non-traditional finance companies that operate outside the CFL.
Providers of these products should closely review the final regulations to understand their impact and ensure compliance by the February 15, 2025, effective date.